Detailed and in-depth notes of Chapters 4-8, covering the content for ECON1012/1013 (Microeconomics). These colourful summaries contain all the important information from the prescribed textbook and include various diagrams to aid understanding. NOTE: Please read the disclaimer very carefully and a...
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Parkin, M. et al. (2020) Economics: Global and Southern African perspectives. 3rd edn. Cape Town, Western Cape: Pearson South Africa.
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, CHAPTER L easily
PRICE ELASTICITY Of DEMAND
A UNITS-FREE MEASURE OF RESPONSIVENESS OF THE QUANTITY DEMANDED Of A GOOD TO A CHANGE
Price whew all other everses or awa blaws Rema the same
IN ITS
·
CALCULATED BY USING FORMULA : O IN QUANTITY DEMANDED EXPRESSED AS I . OF AVERAGE QUANTITY
%. IN PRICE
EXPRESSED AS Y OF AVERAGE PRICE .
·
BY USING AVERAGE PRICE + QUANTITY :.. CALCULATES THE ELASTICITY AT A POINT ON DEMAND CURVE :: MIDWAY BETWEEN
THE ORIGIONAL POINT+ NEW POINT
ELASTICITY Of DEMAND USING POINT ELASTICITY EQUATION :
·
1. P &P
stopt
·
ep
= =
x
180 p ,
+ Pc
x
Pave 2 ·
SLODE = &P
WQ
% Q &Q
·
100 ANSWER ABSOLUTE VALUE
= =
. ·
x
·
MEASURES GLASTICITY AT A DOINT
Qave
·
AVERAGE PRICE + QUANTITY
ORIGIONAL POINT
- vibrio
-
% QD
GIVES MOST PRECISE MEASUREMENT OF ELASTICITY
.
PRICE ELASTICITY OF DEMAND =
I . UP
= Q/Qave
- UP/Pave
AT MIDPOINT BETWEEN ORIGIONAL PRICE + NEW PRICE =2/10
1/20
=4
·
PERCENTAGES + PROPORTIONS NEW POINT
GLASTICITY RATIO Of Y
-
:
.
⑧
- 1 .
:
PROPORTIONATE O MULTIPLIED BY 100
-
100s CANCEL
·
UNITS-FREE MEASURE
I IN
-
&
:
.
EACH VARIABLE IS INDEPENDENT OF UNITS IN WHICH VARIABLE IS MEASURED
-
RATIO OF TWO PERCENTAGES :
No . WITHOUT UNITS
·
MINUS SIGN +ELASTICITY
WHEN PRICE Of GOOD RISES, QUANTITY DEMANDED A
-
Ive W PRICE DEMANDED PRICE GLASTICITY OF DEMAND IS
-
IN : -
Ve O IN QUANTITY : - Ve
-
BUT MAGNITUDE/ ABSOLUTE VALU Of PED THAT INDICATES HOW RESPONSIVE QUANTITY DEMANDED IS :.. Use
MAGNITUDE OF ELASTICITY + IGNORE MINUS SIGN
INELASTIC +ELASTIC DEMAND
·
If QUANTITY DEMANDED REMAINS CONSTANT WHEN PRICE S THEN PED =
O+ GOOD IS SAID TO HAVE PERFECTLY
INELASTIC DEMAND PED =
0
24 =
INSULIN
·
% U IN QUANTITY DEMANDED
. : 1 . O INPRICE THEN PED :
1 +
GOOD IS SAID TO HAVE UNIT ELASTIC DEMAND
·
EG . NECESSITIES LIKE BREAD PtD = 1
· 5 PERFECTLY INELASTIC DEMAND IS GENERAL CASE %U IN Q IS LESS THAN 1 0
UNIT ELASTIC DEMAND IN Which .
INP :: PED OLPEDL1 + GOOD IS SAID TO HAVE INELASTIC DEMAND
·
If QUANTITY DEMANDED O BY INFINETLY LARGE 1 .
IN RESPONSE TO SMALL PRICE O THEN PED IS 20 + G00D IS
SAID TO UAVE PERFECTLY GLASTIC DEMAND PED = D
·
- UNIT ELASTIC DEMAND + PERFECTLY ELASTIC DEMAND IS GENERAL CASE IN WHICH % . QD EXCEEDS 1 IP . ::
PED> 1 + GOOD IS SAID TO HAVE ELASTIC DEMAND
·
EG .
AUTOMOBILES FURNITURE
CERFECTLY
&
ELASTICITY = 0 GLASTICITY = 1 ELASTICITY = &
N, LASTIC
x
NELASTI C
PERFECTLY INELASTIC DEMAND UNIT ELASTIC DEMAND PERFECTLY GLASTIC DEMAND
, ·
FACTORS THAT INFLUENCE ELASTICITY Of DEMAND
CLOSENESS Of SUBSTITUTES
-
·
CLOSER SUBSTITUTES FOR A GOOD :
MORE GLASTIC DEMAND FOR It
·
NECESSITIES HAVE POOR SUBSTITUTES : GENERALLY INELASTIC DEMAND
·LUXURIES HAVE MANY SUBSTITUTES : GENERALLY ELASTIC DEMAND
PROPORTION OF INCOME SPENT ON GOOD
-
·
PROPORTION OF INCOME SPENT ON GOOD THE MORE ELASTIC IS DEMAND FOR IT OTHER THINGS REMAINING
,
SAME
-
TIME ELAPSED SINCE PRICE &
LONGER TIME GLAPSED SINCE PRICE CHANGE THE MORE GLASTIC IS DEMAND
·
·
ELASTICITY ALONG LINEAR DEMAND CURUE
NOT SAME AS SLOPE CONSTANT SLOPE CAN HAVE VARYING ELASTICITY
-
::
: USE FORMULA TO
-
CALCULATE
25
i 20 8 LASTICITY 4 =
ELASTIC
s
⑧
ELASTICITY = 1
⑧
18 ⑧
INELASTIC
: S ⑧ ELASTICITY :
I
⑧
O
10 2030 48 SO QUANTITY (PIZZAS PER HOURS
·
TOTAL REVENUE + ELASTICITY
·
If PRICE CUT & TOTAL REVENUE, DEMAND IS ELASTIC
TOTAL REVENUE FROM SALE Of GOOD QXP
-
:
·
If PRICE CUT ↓ TOTAL REVENUE, DEMAND IS INELASTIC
·
If PRICE (UT LEAVES TOTAL REVENUE UNCHANGED DEMAND IS
UNIT GLASTK
WHEN PO TOTAL REVENUE
-
↓ IN TOTAL
-
REVENUE DEPENDS ON ELASTICITY Of DEMAND
If DEMAND GLASTIC : 1 % PRICE CUTd QUANTITY SOLD BY MORE THAN 11... TOTAL REVENUE
If DEMAND INELASTIC : 1 % PRICE LUT QUANTITY SOLD BY LESS THAN 1 %:. TOTAL REVENUE A
If DEMAND UNIT ELASTIC :: 14 .
PRICE CUT& QUANTIT SOLD BY 1 %:: TOTAL REVENUE DOESN'
-
TOTAL REVENUE TEST :
METHOD Of ESTIMATING PRICE ELASTICITY Of DEMAND BY OBSERVING IN TOTAL REVENUE
THAT RESULTS FROM & IN PRICE ,
WHEN ALL OTHER INFLUENCES ON QUANTITY SOLD REMAIN SAME
25
i 20 GLASTIC DEMAND 312 50
,
MAXIMUM TOTAL
...........
!
REVENUE
s 18
⑧
UNIT ELASTIC PRICE CUT
& TOTAL
REVENUE
· PRICE CUT
.
-
↓ TOTAL
REVENUE
: INELASTIC -
DEMAND
S /
O
10 20 30 40 SO QUANTITY (PIZZAS PER HOURS
is QUANTITY (PIZZAS PER HOURS
·
INCOME ELASTICITY Of DEMAND
A MEASURE OF RESPONSIVENESS Of DEMAND FOR GOOD SERVICE TO A U IN INCOME
-
OTHER THINGS REMAINING
,
THE SAME
-
INDICATES BY HOW MUCH DEMAND CURVE SHIFTS AT GIVEN PRICE
-
INCOME GLASTICITY Of DEMAND = 1 .
QD
Y U INCOME
.
/-ve
~
CAN B +Ve
-
FALLS INTO 3 RANGES
> tre + GREATER THAN 1 NORMAL GOOD + INCOME ELASTIC
:
Stve + LESS THAN 1
:
NORMAL GOOD +
INCOME INELASTIC
Ve INFERIOR GOOD
- :
-
INCOME ELASTIC DEMAND
·
IN QUANTITY DEMANDED EXCEEDs y 4 IN INCOME .
· If DEMAND FOR GOOD : INCOME ELASTIC THEN Y . INCOME SPENT ON THAT GOOD AS INCOME &
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