Robin Naylor, Department of Economics, Warwick Introduction Lecture 3 Demand Elasticity The Price Elasticity of Demand for a Good is a measure of the sensitivity.

Slides:



Advertisements
Similar presentations
Chapter 6: Elasticity.
Advertisements

Chapter 5 Some Applications of Consumer Demand, and Welfare Analysis.
© 2010 W. W. Norton & Company, Inc. 15 Market Demand.
Chapter 15 Market Demand. 2 From Individual to Market Demand Functions Think of an economy containing n consumers, denoted by i = 1, …,n. Consumer i’s.
Robin Naylor, Department of Economics, Warwick 1 Topic 3 : Lecture 17 Perfect competition and Consumer Surplus X p pcpc D Consumer Surplus is given by?
Homework #11 Government Finance. Some suggest that states are addicted to their vice taxes. This certainly might be true with a unit excise tax on cigarettes.
Supply, Demand and Government Policies Chapter 6 Copyright © 2001 by Harcourt, Inc. All rights reserved. Requests for permission to make copies of any.
Robin Naylor, Department of Economics, Warwick 1 Topic 2: Firm Behaviour Lecture 11 The circular flow model once more Agent: Households Market: Goods/Services.
Tax Incidence: Partial Equilibrium Anderson: Equity Aspects of Taxes and Expenditures.
Robin Naylor, Department of Economics, Warwick 1 In this lecture, we consider what factors influence whether there will be a large or a small number of.
Chapter Fifteen Market Demand. From Individual to Market Demand Functions  The market demand curve is the “horizontal sum” of the individual consumers’
Chapter Fifteen Market Demand. From Individual to Market Demand Functions  Think of an economy containing n consumers, denoted by i = 1, …,n.  Consumer.
Economics 214 Lecture 23 Elasticity. An elasticity measures a specific form of responsiveness. The percentage change in one variable that accompanies.
Economics 214 Lecture 15 Differential Calculus. Need for Differential Calculus We have seen the contribution of Comparative statics to our understanding.
Robin Naylor, Department of Economics, Warwick 1 Factor markets: The Labour market Topic 4 Lecture 18.
Robin Naylor, Department of Economics, Warwick Topic 1 Lecture 9 Applications of Consumer Choice Theory 1.Labour Supply: The Income-Leisure Trade-off Leisure.
ECONOMICS 211 CLICKER QUESTIONS Chapter 5 –Set #3.
Consumer, Producer and Community Surplus How much would you be willing to pay for this? Or this?
Economics for your Classroom Ed Dolan’s Econ Blog Who Really Pays Taxes? The Question of Tax Incidence June 21, 2014 Ed Dolan’s Econ Blog Terms of Use:
Public Choice Theory and the Economics of Taxation Chapter 17 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Activities and Definitions.  Q s = P  Q d = P ◦ Price is in dollars per bushel ◦ Quantity is in millions of bushels per year  Find.
Robin Naylor, Department of Economics, Warwick X X Px a a b â The total effect of the price change is to move the consumer’s choice from ‘a’ to ‘â’. If.
Chapter 6-4 Price Elasticity of Supply. Copyright © Houghton Mifflin Company. All rights reserved. 6 | 2 Copyright © Houghton Mifflin Company. All rights.
The Incidence of Taxation. The incidence of taxation Indirect taxes.
© 2010 W. W. Norton & Company, Inc. 15 Market Demand.
Robin Naylor, Department of Economics, Warwick 1 Topic 3 Product Markets: Lecture 16 The circular flow model Agent: Households Market: Goods/Services Market:
Public Finance by John E. Anderson Power Point Slides to Accompany:
Excise Tax And Allocative Efficiency. Effect of a $.15 Excise Tax QuantitySupply Price Before Tax Supply Price After Tax.
Macroeconomics Lesson 2. Topics 1. Homework 2. Review Supply and Demand 3. Floors and Ceilings 4. Elasticity.
CDAE Class 28 Dec 7 Last class: 9. Applying the competitive models Quiz 8 (Chapters 7 and 8) Quiz 9 (optional and take home, due 12:00noon, Friday,
Robin Naylor, Department of Economics, Warwick Topic 1 Lecture 10 Applications of Consumer Choice Theory 2.Inter-temporal Choice I 1, C 1 I 0, C 0 Think.
Lecture 3 and 4: Analysis of Elasticity Lecture Objectives: 1. Define Ped & its determinants 2. Use worked examples 3. Consider its relevance to real world.
Economics 1 (EC107) : Micro (Term 1) Robin Naylor, Department of Economics, Warwick Topic 1: Lecture 3 The circular flow model Agent: Households.
Public Choice Theory and the Economics of Taxation Chapter 17 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
1 Market Demand Molly W. Dahl Georgetown University Econ 101 – Spring 2009.
Tax Incidence & Elasticity
1 Price Elasticity and Tax Incidence CHAPTER 5 Appendix © 2003 South-Western/Thomson Learning.
Taxes on Producers.
S + ad valorem tax S P Q O Effect of a tax on the supply curve.
Effect of a tax on price and quantity S + tax S O P1P1 Q1Q1 D P Q.
Deadweight Loss Retained CS Tax Rev From CS Tax Rev From CS Retained PS.
Robin Naylor, Department of Economics, Warwick Topic 1: Lecture 5 Demand Analysis: Constraints We said that our understanding of Consumer Choice rests.
Per-unit Subsidy DSP(4) – Market Intervention. Price ($) Q D S1S1S1S1 P1P1 Q1Q1 The price is $6 and the quantity.
Robin Naylor, Department of Economics, Warwick Topic 1: Lecture 6 Demand Analysis: Change in price of X X Y X max 0 Y max X* Y* a What can you say about.
Economics 1 (EC107) : Micro (Term 1) Robin Naylor, Department of Economics, Warwick Introduction Lecture 2 The circular flow model Agent: Households.
Incidence of a tax. The Incidence of a sales tax The incidence of a sales tax describes who actually bears the burden of the tax. – What portion of the.
Sharing of the Tax Burden
Robin Naylor, Department of Economics, Warwick
TAX Direct & Indirect.
Robin Naylor, Department of Economics, Warwick
Robin Naylor, Department of Economics, Warwick
Sharing of the Tax Burden
MARKET DEMAND, CONSUMER SURPLUS & OWN-PRICE ELASTICITY
15 Market Demand.
Increase in total revenue Decrease in total revenue
Chapter 5 Price Elasticity of Demand and Supply
Principles of Economics
Principles of Economics
Principles of Economics
Principles of Economics
Formula for the Excess Burden
Tax Incidence.
Chapter 4: Applications Using Demand and Supply
Excise Tax P $ S D Q.
Chapter 6: Elasticity.
Chapter Fifteen Market Demand.
See Handout (contains whole of lectures 3-5) Topic 1: Lecture 3
The Elasticity of Demand (Own-Price)
Chapter Fifteen Market Demand.
EXHIBIT 1 The Impact of a Decrease in Price on Total Revenue
Presentation transcript:

Robin Naylor, Department of Economics, Warwick Introduction Lecture 3 Demand Elasticity The Price Elasticity of Demand for a Good is a measure of the sensitivity or responsiveness of demand for a good to a change in its price. More precisely: 1

Robin Naylor, Department of Economics, Warwick Introduction Lecture 3 Demand Elasticity 2

Robin Naylor, Department of Economics, Warwick Introduction Lecture 3 Demand Elasticity 3

Robin Naylor, Department of Economics, Warwick Introduction Lecture 3 Demand Elasticity 0 4

Robin Naylor, Department of Economics, Warwick Introduction Lecture 3 Demand Elasticity 0 5

Robin Naylor, Department of Economics, Warwick Introduction Lecture 3 Importance of Elasticity Suppose the Government raises the indirect tax on this commodity. How do we show this? X0 p p* X* S D 6

Robin Naylor, Department of Economics, Warwick Introduction Lecture 3 Importance of Elasticity What is the Tax Revenue... ? X0 p p* X* S D STST 7

Robin Naylor, Department of Economics, Warwick Introduction Lecture 3 Importance of Elasticity What is the Tax Revenue? What is the Tax Burden? X0 p p* X* S D STST A B 8

Robin Naylor, Department of Economics, Warwick Introduction Lecture 3 Importance of Elasticity What is the Tax Burden? How would the shares of the tax burden change with a different price elasticity of demand for the good? X0 p p* X* S D STST A B S STST 0 p 9

Robin Naylor, Department of Economics, Warwick Introduction Lecture 3 Importance of Elasticity What is the Tax Burden? How would the shares of the tax burden change with a different price elasticity of demand for the good? X0 p p* X* S D STST A B S STST 0 p D 10

Robin Naylor, Department of Economics, Warwick Introduction Lecture 3 Importance of Elasticity How would the shares of the tax burden change with a different price elasticity of demand for the good? Why is this? X0 p p* X* S D STST A B S STST 0 p D A B 11

Robin Naylor, Department of Economics, Warwick Introduction Lecture 3 Now read B&B 4 th Ed., pp and, on the incidence of a tax, pp