1. SAYRE | MORRIS Seventh Edition Elasticity CHAPTER 4 4-1© 2012 McGraw-Hill Ryerson Limited

2. Applications of Price Elasticity Excise Tax a sales tax imposed on a particular product 4-2© 2012 McGraw-Hill Ryerson Limited LO4

3. Applications of Price Elasticity the more inelastic the demand for a product, the larger is the percentage of a sales (or excise) tax the consumer will pay 4-3© 2012 McGraw-Hill Ryerson Limited LO4

4. Elasticity of Supply a measure of how much quantity supplied changes as a result of a change in price can be expanded to: 4-4© 2012 McGraw-Hill Ryerson Limited LO5

5. Elasticity of Supply Example: When price changes from $2 to $3, the quantity supplied rises from 400 to 500. 4-5© 2012 McGraw-Hill Ryerson Limited LO5

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7. Perfectly Inelastic Supply 4-7© 2012 McGraw-Hill Ryerson Limited LO5

8. Income Elasticity the responsiveness of quantity demanded to a change in income can be expanded to: 4-8© 2012 McGraw-Hill Ryerson Limited LO5

9. Income Elasticity 4-9© 2012 McGraw-Hill Ryerson Limited LO5 If coefficient is: Type of Good: Demand is: Greater than 1 Normal – Luxury good Income elastic Less than 1 but greater than 0 Normal – Necessity Income inelastic Less than 0Inferior good Negative income elasticity

10. Income Elasticity TABLE 4.9 Differences in Spending between the Richest and Poorest Groups in Canada, 1996 4-10© 2012 McGraw-Hill Ryerson Limited LO5 Income InelasticIncome Elastic Category Lowest income percentile Highest income percentileCategory Lowest income percentile Highest income percentile Food20.1%15.9%Furniture2.7%4.3% Shelter34.621.9Clothing4.47.3 PublicPrivate transport2.01.7transport9.617.6 HouseholdRecreation4.99.1 operation7.26.6Education1.32.2 Tobacco & alcohol3.92.8 Source: Based on Statistics Canada, Family Expenditure in Canada, 1996, catalogue no. 62-555-XPB, released on July 28, 1998.

11. Cross Elasticity responsiveness of the change in Qd of product A to a change in the price of product B can be expanded to: 4-11© 2012 McGraw-Hill Ryerson Limited LO5

12. Cross Elasticity 4-12 LO5 MargarineButter Price Quantity Demanded per Week (lb.) Price Quantity Demanded per Week (lb.) $1.505000$3.001000 2.1032003.002000

13. Cross Elasticity 4-13© 2012 McGraw-Hill Ryerson Limited LO5 If coefficient is: Goods are: PositiveSubstitutes NegativeComplements

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