Cengage
For Use with ThomsonNOW
Chapter 5: Price Elasticity of Demand and Supply
LEARNING OBJECTIVES
#1 - Calculate the price elasticity of a demand curve using the mid-points formula and relate price elasticity to the total revenue curve.
Step 1 Read the sections in your textbook titled “Price Elasticity of Demand” and “Price Elasticity of Demand Variations along a Demand Curve.” After reading these sections, you should be able to interpret the elastic, inelastic, unitary elastic, perfectly elastic, and perfectly inelastic demand curve concepts and their relationship to total revenue.
* Original Step 2 Deleted
Step 2 Listen to the “Ask the Instructor Video Clip” titled “Is Price Elasticity of Demand the Same Thing as Slope?” You will learn why price elasticity of demand is not the same as the slope.
Step 3 Watch the CNN Video Clip titled “Smokers and the Bandits” and analyze how the quantity of cigarettes demanded responded to a price hike.
Step 4 Read the EconNews article titled “You Need a Calculator - and a Second Mortgage, Sometimes -to go to Amusement Parks These Days.” This article describes differences in price elasticity of demand between those who purchase tickets at the gate versus consumers who purchase their tickets in advance online.
The Result By following the steps above, you have learned that a straight line has three segments, including the elastic, unitary elastic, and inelastic ranges. Each of these ranges is related to the total revenue curve.
#2 - Calculate and interpret income elasticity of demand, cross-elasticity of demand, price elasticity of supply, and explain who pays the burden of a tax.
Step 1 Read the sections in your textbook titled “Other Elasticity Measure” and “Price Elasticity.” After reading these sections, you should be able to determine whether a product is normal or inferior.
Step 2 Read the Graphing Workshop “Grasp It!” exercise titled “Tax Incidence.” This exercise uses a slider bar to demonstrate how various levels of a tax shift the relative burden between buyers and sellers of a product.
Step 3 Create a new graph at the Graphing Workshop “Try It!” exercise titled “Tax Incidence.” This exercise illustrates how a tax is divided between buyers and sellers in the market for restaurant meals.
Step 4 Play the “Causation Chains Game” titled “The Tax Incidence of a Tax on Gasoline.”
Step 5 Listen to the “Ask the Instructor Video Clip” titled “Why Are Taxes on Cigarettes so High?” You will learn the relationship between price elasticity of demand and taxation on cigarettes.
The Result By following the steps above, you have learned that income elasticity of demand determines whether a good is normal or inferior and cross elasticity of demand relates to whether a good is a substitute or a complement. Also, you will be able to interpret the elastic, inelastic, unitary elastic, perfectly elastic, and perfectly inelastic supply curve concepts. You will also understand that the price elasticity of the demand and supply curves determine the proportion of a tax passed on the consumers and businesses.
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