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Chapter 6 - PowerPoint Slides

Chapter 6 focuses on elasticity, defining key concepts such as price elasticity of demand, income elasticity, and cross elasticity of demand. It explains the significance of these elasticities, their categories, and the determinants affecting them. The chapter also discusses the relationship between price elasticity of demand and total revenue, as well as the price elasticity of supply.

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13 views25 pages

Chapter 6 - PowerPoint Slides

Chapter 6 focuses on elasticity, defining key concepts such as price elasticity of demand, income elasticity, and cross elasticity of demand. It explains the significance of these elasticities, their categories, and the determinants affecting them. The chapter also discusses the relationship between price elasticity of demand and total revenue, as well as the price elasticity of supply.

Uploaded by

monamap117
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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© VAN SCHAIK PUBLISHERS

Chapter 6:
Elasticity
Learning Outcomes

Once you have studied this chapter you should be able to


• define elasticity
• explain the meaning and significance of price elasticity of demand
• distinguish between five categories of price elasticity of demand
• explain the determinants of price elasticity of demand
• define income elasticity and cross elasticity of demand
• explain the meaning and significance of price elasticity of supply

© VAN SCHAIK PUBLISHERS


Introduction

© VAN SCHAIK PUBLISHERS


A general definition of elasticity

© VAN SCHAIK PUBLISHERS


The price elasticity of demand
Figure 6-1 The impact of different demand elasticities on the
equilibrium price and quantity (Textbook page 105)

© VAN SCHAIK PUBLISHERS


The price elasticity of demand

Figure 6-1 The impact of different demand


elasticities on the equilibrium price
and quantity continued

© VAN SCHAIK PUBLISHERS


The price elasticity of demand

• Calculating price elasticity of demand


Box 6-1 calculating arc elasticity (Textbook page 107)

© VAN SCHAIK PUBLISHERS


The price elasticity of demand

• Price elasticity of demand and total revenue (or total


expenditure)
– A numerical example

Table 6-1 The demand for cappuccinos and total revenue from
cappuccino sales (Textbook page 109)

Figure 6-2 The relationship between price elasticity of demand and


total revenue (Textbook page 109)

© VAN SCHAIK PUBLISHERS


The price elasticity of demand

• Different categories of price elasticity of demand


– Perfectly inelastic demand
– Inelastic demand

Box 6-3 Elasticity and slope (Textbook page 114)

– Unitarily elastic demand (unitary elasticity)


– Elastic demand
– Perfectly elastic demand

© VAN SCHAIK PUBLISHERS


The price elasticity of demand

Different categories of price elasticity of demand

Figure 6-3 The different categories of price elasticity of demand


(Textbook page 111)

© VAN SCHAIK PUBLISHERS


The price elasticity of demand

Different categories of price elasticity of demand


Figure 6-3 The different categories of price elasticity of demand continued

© VAN SCHAIK PUBLISHERS


The price elasticity of demand

Different categories of price elasticity of demand


Figure 6-3 The different categories of price elasticity of demand continued

© VAN SCHAIK PUBLISHERS


The price elasticity of demand

Different categories of price elasticity of demand


Figure 6-3 The different categories of price elasticity of demand continued

© VAN SCHAIK PUBLISHERS


The price elasticity of demand

Different categories of price elasticity of demand


Figure 6-3 The different categories of price elasticity of demand continued

© VAN SCHAIK PUBLISHERS


The price elasticity of demand

Different categories of price elasticity of demand

Table 6-2 Price elasticity of demand: a summary


(Textbook page 112)

Box 6-2 Price elasticity of demand, price changes and changes in


total revenue (Textbook page 113)

© VAN SCHAIK PUBLISHERS


The price elasticity of demand

• Determinants of the price elasticity of demand


– Substitution possibilities
– The degree of complementarity of the product
– The type of want satisfied by the product
– The time period under consideration
– The proportion of income spent on the product
– Other possible determinants of price elasticity of
demand
* The definition of the product
* Advertising
* Durability
* Number of uses of the product
* Addiction
– The combined effect of the determinants
• Applications © VAN SCHAIK PUBLISHERS
Other demand elasticities

• Income elasticity of demand

Table 6-3 Some estimated income elasticities of demand in South


Africa, 1985 (Textbook page 116)

• Cross elasticity of demand

© VAN SCHAIK PUBLISHERS


The price elasticity of supply

• Different categories of supply elasticity

• The determinants of the price elasticity of supply

© VAN SCHAIK PUBLISHERS


The price elasticity of supply

The determinants of the price elasticity of supply

Figure 6-4 Different categories of price elasticity of supply


(Textbook page 118)

© VAN SCHAIK PUBLISHERS


The price elasticity of supply

The determinants of the price elasticity of supply


Figure 6-4 Different categories of price elasticity of supply continued

© VAN SCHAIK PUBLISHERS


The price elasticity of supply

The determinants of the price elasticity of supply


Figure 6-4 Different categories of price elasticity of supply continued

© VAN SCHAIK PUBLISHERS


The price elasticity of supply

The determinants of the price elasticity of supply


Figure 6-4 Different categories of price elasticity of supply continued

© VAN SCHAIK PUBLISHERS


The price elasticity of supply

The determinants of the price elasticity of supply


Figure 6-4 Different categories of price elasticity of supply continued

© VAN SCHAIK PUBLISHERS


Elasticity: a summary

Table 6-4 Different elasticities: a summary (Textbook page 119)

© VAN SCHAIK PUBLISHERS


Important concepts

• Elasticity • Slope and inverse of slope


• Price elasticity of demand • Determinants of price
• Elasticity coefficient elasticity
• Arc elasticity • Income elasticity of demand
• Total revenue (or expenditure) • Normal and inferior goods
• Perfectly inelastic demand • Essential and luxury goods
• Inelastic demand • Cross elasticity of demand
• Unitarily elastic demand • Price elasticity of supply
• Elastic demand • Elastic and inelastic supply
• Perfectly elastic demand

© VAN SCHAIK PUBLISHERS

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