1. Copyright ©2006 by Thomson South-Western. All rights reserved. Contemporary Economics: An Applications Approach By Robert J. Carbaugh 4th Edition Chapter 3: Demand and Supply Applications

2. Carbaugh, Chap. 3 2 Price elasticity of demand Elasticity of Demand elasticity coefficient itemshort runlong run Airline travel0.12.4 Medical care0.30.9 Auto tires0.91.2 Gasoline0.20.7 Housing0.31.9 Automobiles1.92.2 Movies0.93.7 Natural gas1.42.1 Estimated price elasticities of demand Sources: From Robert Archibald and Robert Gillingham, “An Analysis of the Short-Run Consumer Demand for Gasoline Using Household Survey Data,” Review of Economics and Statistics, November 1980, pp. 622–628; and Hendrik Houthakker and Lester Taylor, Consumer Demand in the United States (Cambridge: Harvard University Press, 1970), pp. 56–149.

3. Carbaugh, Chap. 3 3 Elasticity and airline ticket tax Elasticity of Demand D 1 (elastic)

4. Carbaugh, Chap. 3 4 Elasticity and tuition revenue Elasticity of Demand

5. Carbaugh, Chap. 3 5 Rent ceilings and housing shortages Price Ceilings and Floors Rent ($) S0S0 D1D1 D0D0 Shortage Rent ceiling A C B 0 600 900 4001000 Quantity of apartments per month 700

6. Carbaugh, Chap. 3 6 Effect of price supports for wheat Price Ceilings and Floors Price S0S0 D0D0 Surplus Price floor A C B $0 $4 $5 07911 Quantity of wheat (millions of bushels)

7. Carbaugh, Chap. 3 7 Increasing cost of health care Elasticity applied Price ($) S0S0 D1D1 D0D0 A B S1S1 0 200 250 102030 Quantity of health services per month