Chapter 5 - ELasticity. After completing this unit, you should be able to: Define elasticity, classify elasticity values into inelastic and elastic categories, use the elasticity coefficient to assess the price elasticity of demand, | Introduction to Economics: Social Issues and Economic Thinking Wendy A. Stock PowerPoint Prepared by Z. Pan Chapter 5 Elasticity Copyright © 2013 John Wiley & Sons, Inc. / Photo Credit: ©Katja Bone/iStockphoto 1 Define elasticity Classify elasticity values into inelastic and elastic categories Use the elasticity coefficient to assess the price elasticity of demand Assess the relationship between elasticity and total revenue Describe the factors that determine the price elasticity of demand Copyright © 2013 John Wiley & Sons, Inc. 2 After studying this chapter, you should be able to: 2 Elasticity is a measure of responsiveness between any two variables. The Price Elasticity of Demand measures the responsiveness of quantity demanded to changes in price, all expressed in percentage terms. Copyright © 2013 John Wiley & Sons, Inc. 3 WHAT IS ELASTICITY? 3 Elastic Demand: When a given percent change in the price of a good causes a larger percent change in the quantity demanded of the good. Inelastic Demand: When a given percent change in the price of a good causes a smaller percent change in the quantity demanded of the good. Unit Elastic Demand: When a given percent change in the price of a good causes an equal size percent change in the quantity demanded. Copyright © 2013 John Wiley & Sons, Inc. 4 CATEGORIES OF ELASTICITY 4 Perfectly Inelastic Demand: Quantity demanded does not change in response to a price change. Copyright © 2013 John Wiley & Sons, Inc. 5 CATEGORIES OF ELASTICITY 5 Perfectly Elastic Demand: Quantity demanded changes by an infinite amount in response to a price change. Copyright © 2013 John Wiley & Sons, Inc. 6 CATEGORIES OF ELASTICITY 6 Elasticity Coefficient = E = = TV example: price increased by 25 percent and quantity demanded fell by 33 percent, so the elasticity coefficient is: E = = Copyright © 2013 John Wiley & Sons, Inc. 7 THE ELASTICITY COEFFICIENT 7 Copyright © 2013 John Wiley & Sons, Inc. 8 Summary of Elasticity Coefficient Values 8 | Introduction to Economics: Social Issues and Economic Thinking Wendy A. Stock PowerPoint Prepared by Z. Pan Chapter 5 Elasticity Copyright © 2013 John Wiley & Sons, Inc. / Photo Credit: ©Katja Bone/iStockphoto 1 Define elasticity Classify elasticity values into inelastic and elastic categories Use the elasticity coefficient to assess the price elasticity of demand Assess the relationship between elasticity and total revenue Describe the factors that determine the price elasticity of demand Copyright © 2013 John Wiley & Sons, Inc. 2 After studying this chapter, you should be able to: 2 Elasticity is a measure of responsiveness between any two variables. The Price Elasticity of Demand measures the responsiveness of quantity demanded to changes in price, all expressed in percentage terms. Copyright © 2013 John Wiley & Sons, Inc. 3 WHAT IS ELASTICITY? 3 Elastic Demand: When a given percent change in the price of a good causes a larger percent change in the quantity demanded of the good.
