elasticity

ELASTICITYELASTISITEIT

MOHR & F

OURIE: C

HAPTER /

HOOFSTU

K 9

ECON121_2013

OUTCOMES

Types

Categories

Define

Calculate Point Arc

Interpret

Factors

Impact on actions Consumer Producer

UITKOMSTES

Tipes

Kategorieë

Definieer

Bereken Punt Boog

Interpreteer

Faktore

Impak op aksies van Verbruiker Produsent

VRAAG

• Wat is elastisiteit?

QUESTION

• What is elasticity?

PLAY TIME

Stretch a rubber band

What are we looking at?

SPEELTYD

Rek ‘n rekkie

Waarna kyk ons?

PLAY TIME

Equilibrium (Ch 7 – 8)

∆ S & D (PPPINT)

SPEELTYD

Ewewig (Hfstk 7 – 8)

∆ V & A (PPPINT)

PLAY TIME

• What is the absolute or relative size of the change in price and quantity

• Eq P ↕ by how much?

• Eq Q ↕ by how much?

• TR?

• Higher prices or lower prices?

WHAT IS ELASTICITY?

How sensitive or responsive the dependent variable is to changes in the independent variable.

WAT IS ELASTISITEIT?

Hoe sensitief of gevoelig die afhanklike veranderlike vir veranderings in die onafhanklike verandering is.

P

QQ

%

%...

%

%

WHAT IS ELASTICITY? WAT IS ELASTISITEIT?

WHAT IS ELASTICITY?

Elasticity measures how much impact a small (1%) change in price (or other factors) will have on the quantity (supplied or demanded).

WAT IS ELASTISITEIT?

Elastisiteit meet hoeveel impak ‘n klein verandering (1%) in prys (of ander faktore) op die hoeveelheid (gevra of aangebied) sal hê.

P

QQ

%

%...

%

%

4 TYPES

Price elasticity of demand

Income elasticity of demand

Cross-price elasticity of demand

Price elasticity of supply

4 SOORTE

Prys-elastisiteit van vraag

Inkome-elastisiteit van vraag

Kruis-prys-elastisiteit van vraag

Prys-elastisiteit van aanbod

Ap

Vxp

VY

Vp

E

E

E

E

Sp

Dxp

DY

Dp

E

E

E

E

__?__ elasticity of __?__ _?_ elastisiteit van _?_

WHAT IS PRICE ELASTICITY OF DEMAND?

PED is the % ▲ in the Qd if the price of the product ▲ by 1 %

WAT IS PRYS ELASTISITEIT VAN VRAAG?

PEV is die %▲ in die Qd indien die prys van die produk met 1% ▲

P

Q

%

%

EP OF DEMAND

The price elasticity of demand is

Formula:

Relative change

Measures consumer’s reaction to price change

EP VAN VRAAG

Die prys elastisiteit van vraag is

Formule:

Relatiewe verandering

Meet verbruikers reaksie op prys verandering

P

Q

productofPinchange

demandedQinchangeE DDp

%

%

%

%

5 CATEGORIES

Perfectly elastic any Q at one P

Perfectly inelastic any P at one Q

Unitary elastic %Q = %P

Relatively elastic %Q > %P

Relatively inelastic %Q < %P

5 KATEGORIEË

Volmaak elasties enige Q by een P

Volmaak onelasties enige P by een Q

Eenheids elasties %Q = %P

Relatief elasties %Q > %P

Relatief onelasties %Q < %P

Value of ANSWER Waarde van ANTWOORD

1

1

1

0

E

E

E

E

E

HOW DOES IT LOOK?

Perfectly elastic Any Q at one P E = I∞I

HOE LYK DIT?

Volmaak elasties Enige Q by een P E = I∞I

P

Q

Eeeeeelastic

HOW DOES IT LOOK?

Perfectly inelastic Any P at one Q E = 0

HOE LYK DIT?

Volmaak onelasties Enige P by een Q E = 0

P

Q

-nelastic

HOW DOES IT LOOK?

Unitary elastic Same % change in P&Q %Q = %P E = I 1 I

HOE LYK DIT?

Eenheids elasties Selfde % verandering in P&Q %Q = %P E = I 1 I

P

Q

P

Q

DEMAND / VRAAG SUPPLY / AANBOD

D

S2%P, 2%Q2/2 = 1

P

Q

%

%

HOW DOES IT LOOK?

Relatively elastic Q changes MORE than P %Q > %P E > I 1 I

HOE LYK DIT?Relatief elasties Q verander MEER as P %Q > %P E > I 1 I

P

Q

P

Q

DEMAND / VRAAG SUPPLY / AANBOD

D

S

2%P, 4%Q4/2 = 2

P

Q

%

%

HOW DOES IT LOOK?

Relatively inelastic Q changes LESS than P %Q < %P E < I 1 I

HOE LYK DIT?

Relatief onelasties Q verander MINDER as P %Q < %P E < I 1 I

P

Q

P

Q

DEMAND / VRAAG SUPPLY / AANBOD

D

S

4%P, 2%Q2/4 = 0.5

P

Q

%

%

POINT ELASTICITY

Elasticity value at a SINGLE point on a curve

PUNT ELASTISITEIT

Elastisiteits waarde by ‘n ENKELE punt op ‘n kurwe

Q

P

P

QE

‘CHEAT’ TABEL / ‘CHEAT’ TABLE

P Q

Punt: A

Punt: B

▲AB P A- P B QA-QB

ΣAB P A+ P B QA+QB

P Q

Punt: 1

Punt: 2

▲1,2 P 1- P 2 Q1-Q2

▲1,2

Σ1,2 P 1+ P 2 Q1+Q2

Σ1,2

Bereken:

•Punt-Elastisiteit by 1

•Punt-Elastisiteit by 2

•Boog-Elastisiteit van 1-2

Calculate:

•Point Elasticity at Point 1

•Point Elasticity at Point 2

•Arc Elasticity between Points 1-2

Voorbeeld / Example (Box9-1)

P Q

Punt: 1 10 17Punt: 2 8 19

▲1,2 P 1- P 2 Q1-Q2

▲1,2

Σ1,2 P 1+ P 2 Q1+Q2

Σ1,2

Bereken:

•Punt-Elastisiteit by 1

•Punt-Elastisiteit by 2

•Boog-Elastisiteit van 1-2

Calculate:

•Point Elasticity at Point 1

•Point Elasticity at Point 2

•Arc Elasticity between Points 1-2

Voorbeeld / Example (Box9-1)

P Q

Punt: 1 10 17Punt: 2 8 19

▲1,2 P 1- P 2 Q1-Q2

▲1,2 2 -2Σ1,2 P 1+ P 2 Q1+Q2

Σ1,2

Bereken:

•Punt-Elastisiteit by 1

•Punt-Elastisiteit by 2

•Boog-Elastisiteit van 1-2

Calculate:

•Point Elasticity at Point 1

•Point Elasticity at Point 2

•Arc Elasticity between Points 1-2

Voorbeeld / Example (Box9-1)

P Q

Punt: 1 10 17Punt: 2 8 19

▲1,2 P 1- P 2 Q1-Q2

▲1,2 2 -2Σ1,2 P 1+ P 2 Q1+Q2

Σ1,2 18 36

Bereken:

•Punt-Elastisiteit by 1

•Punt-Elastisiteit by 2

•Boog-Elastisiteit van 1-2

Calculate:

•Point Elasticity at Point 1

•Point Elasticity at Point 2

•Arc Elasticity between Points 1-2

Voorbeeld / Example (Box9-1)

Q

P

P

QE

P Q

Punt: 1 10 17Punt: 2 8 19

▲1,2 P 1- P 2 Q1-Q2

▲1,2 2 -2Σ1,2 P 1+ P 2 Q1+Q2

Σ1,2 18 36

Bereken:

•Punt-Elastisiteit by 1

•Punt-Elastisiteit by 2

•Boog-Elastisiteit van 1-2

Calculate:

•Point Elasticity at Point 1

•Point Elasticity at Point 2

•Arc Elasticity between Points 1-2

Voorbeeld / Example (Box9-1)

59.017

10

2

2

E

E

Q

P

P

QE

Elastic ∞

Relative E (1-∞)

Relative IE (0-1)

Inelasties (0)

Unitary E (1)

P Q

Punt: 1 10 17Punt: 2 8 19

▲1,2 P 1- P 2 Q1-Q2

▲1,2 2 -2Σ1,2 P 1+ P 2 Q1+Q2

Σ1,2 18 36

Bereken:

•Punt-Elastisiteit by 1

•Punt-Elastisiteit by 2

•Boog-Elastisiteit van 1-2

Calculate:

•Point Elasticity at Point 1

•Point Elasticity at Point 2

•Arc Elasticity between Points 1-2

Voorbeeld / Example (Box9-1)

42.019

8

2

2

E

E

Q

P

P

QE

Elastic ∞

Relative E (1-∞)

Relative IE (0-1)

Inelasties (0)

Unitary E (1)

ARC ELASTICITY

Elasticity over a SECTION of the curve

Use averages but ...

Simplified (trust me...)

BOOG ELASTISITEIT

Elastisiteit oor ‘n STUKKIE van die kurwe

Gebruik gemiddeldes maar ...

Vereenvoudig (glo my ...)

21

21

QQ

PP

P

QE

Q

P

P

QE

P Q

Punt: 1 10 17Punt: 2 8 19

▲1,2 P 1- P 2 Q1-Q2

▲1,2 2 -2Σ1,2 P 1+ P 2 Q1+Q2

Σ1,2 18 36

Bereken:

•Punt-Elastisiteit by 1

•Punt-Elastisiteit by 2

•Boog-Elastisiteit van 1-2

Calculate:

•Point Elasticity at Point 1

•Point Elasticity at Point 2

•Arc Elasticity between Points 1-2

Voorbeeld / Example (Box9-1)

Elastic ∞

Relative E (1-∞)

Relative IE (0-1)

Inelasties (0)

Unitary E (1)

5.036

18

2

2

E

E

Q

P

P

QE

PUNT / POINT

SONDER helling / WITHOUT slope

Met HELLING / With SLOPE

ARC / BOOG

SONDER helling / WITHOUT slope

Met HELLING / With SLOPE

Q

P

P

QE

Q

P

slopeE

1

Q

P

P

QE

Q

P

slopeE

1

WHAT IS ELASTICITY?

Why NB?

POINT vs. ARCFor ALL TYPES

ABSOLUTE valuesInterpretation

WAT IS ELASTISITEIT?

Waarom NB?

PUNT teenoor BOOGVir ALLE TIPES

ABSOLUTE waardesInterpretasie

PRICE ELASTICITY PRYS ELASTISITEIT

0 -1 +1

Volmaak ElastiesPerfectly Elastic

Relatief O-nelastiesRelatiively Inelastic

0-1

Relatief ElastiesRelatively Elastic

1 -

Relatief ElastiesRelatively Elastic

1-

Volmaak ElastiesPerfectly Elastic

EENHEIDS ElastiesUNITARY Elastic

1

EENHEIDS ElastiesUNITARY Elastic

1

Volmaak Onelasties

Perfectly Inelastic

Supply / AanbodDemand / Vraag

HUISWERK / HOMEWORK

EXERCISE

• Calculate the price elasticity of demand at a price of R84 and quantity of 20 if the slope of the demand curve is equal to -0,35.

OEFENING

• Bereken die prys elastisiteit van vraag by ʼn prys van R84 en hoeveelheid van 20 indien die helling van die vraagkurwe gelyk is aan -0,35.

ELASTICITYELASTISITEIT

MOHR & F

OURIE: C

HAPTER /

HOOFSTU

K 9

ECON121_2013

OUTCOMES

Types

Categories

Define

Calculate Point Arc

Interpret

Factors

Impact on actions Consumer Producer

UITKOMSTES

Tipes

Kategorieë

Definieer

Bereken Punt Boog

Interpreteer

Faktore

Impak op aksies van Verbruiker Produsent

EP & TR (TOTAL REVENUE)

How will a P impact on your TR?

Price ... Qty Price ... Qty

NB. What changes MORE?

TR = P x Q?TR = P x Q?TR = P x Q

EP & TR (TOTALE INKOME)

Hoe sal P jou TR beïnvloed?

Prys ... QtyPrys ... Qty

NB. Wat verander MEER?

TR = P x Q?TR = P x Q?TR = P x Q

TR @ P=18

TR @ P = 14

TR @ P = 10

FIG. 9-3

TR

R.Elastic ...TR

R.Inelastic ... TR

BOX 9-2 (TR) RAAM 9-2 (TR)

Ep < | 1 |

Relatief onelasties

Relatively inelastic

P > Q

TR volg P

TR follows P

Ep > | 1 |Relatief elasties

Relatively elastic

Q > PTR volg Q

TR follows Q

Ep = | 1 |Eenheids elasties

Unitary elastic

P = QTR onveranderd

TR unchanged

FIG.9-5 (D1)

UNITARY Elastic

Supply increases

Revenue???

FIG.9-5 (D1)

EENHEIDS Elasties

Aanbod vermeerder

Inkome???

S1

A0

S2

D1

P0 = 10

P1 = 7.50

Q0 = 15

Q1 = 20

FIG.9-5 (D2)

Relatively Inelastic

Supply increases

Revenue???

FIG.9-5 (D2)

Relatief Onelasties

Aanbod vermeerder

Inkome???

S1

A0

S2

D2 P0 = 10

P2 = 5

Q0 = 15

Q2 = 17

HOMEWORK

Suppose the demand for cigarettes in SA has been estimated as:

Qd = 6000 – 150P

Where Q is the number of packets of cigarettes demanded each year and P is the price in rand per packet.

Answer the following questions:

HUISWERK

Veronderstel die vraag na sigarette in SA word voorgestel as:

Qd = 6000 – 150P

Waar Q die aantal pakkies sigarette per jaar is wat aangevra word en P is die prys per pakkie.

Beantwoord die volgende vrae:

HOMEWORK

Question 1Complete the following table

HUISWERK

Vraag 1Voltooi die volgende tabel

P Qd TR

Price Elasticity

Prys Elastisitei

t

R5

R10

R15

R20

R25

R30

R35

HOMEWORK

Question 2If the current price of cigarettes is R15 per packet, what pricing strategy will increase producers TR?

Question 3If the current price of cigarettes is R25 per packet, what pricing strategy will increase producers TR?

HUISWERK

Vraag 2As die prys van sigarette R15

per pakkie is, watter prys strategie moet toegepas word sodat TR sal toeneem?

Vraag 3As die prys van sigarette R25

per pakkie is, watter prys strategie moet toegepas word sodat TR sal toeneem?

EP OF SUPPLY

The price elasticity of supply is …

Formula:

Relative change

Measures producer’s reaction to price change

EP VAN AANBOD

Die prys elastisiteit van aanbod is…

Formule:

Relatiewe verandering

Meet produsent se reaksie op prys verandering

P

QE SDp

%

%

productofPinchange%

suppliedQinchange%

EY OF DEMAND

The income elasticity of demand is …

Formula:

Relative change

Measures consumer’s reaction to change in income

EY VAN VRAAG

Die inkome elastisiteit van vraag is …

Formule:

Relatiewe verandering

Meet verbruikers reaksie op inkome verandering

Y

QE DY

%

%

income sconsumer'in change %

product of demanded Qin change %

INCOME ELASTICITY INKOME-ELASTISITEIT

0 +1

InferiorMinderwaardig

NecessityNoodsaaklik

LuxuryLuuks

Volmaak ElastiesPerfectly Elastic

Volmaak ElastiesPerfectly Elastic

∞ ∞

Volmaak OnelastiesPerfectly Inelastic

Normale goedere

EY OF DEMAND

Joanne kry ‘n 15% salaris verhoging en haar EY

D = -0.35 vir Steers Hamburgers. Bereken die impak van hierdie salaris verhoging op haar vraag na Steers Hamburgers en verduidelik watter tipe produk sy dit klassifiseer as.

EY VAN VRAAG

Joanne receives a 15% salary increase and her EY

D = -0.35 for Steers Hamburgers. Calculate how her salary increase will affect her demand for Steers Hamburgers and as what type of product she classifies it.

EY OF DEMAND

Joanne kry ‘n 15% salaris verhoging en haar EY

D = -0.35 vir Steers Hamburgers. Bereken die impak van hierdie salaris verhoging op haar vraag na Steers Hamburgers en verduidelik watter tipe produk sy dit klassifiseer as.

EY VAN VRAAG

Joanne receives a 15% salary increase and her EY

D = -0.35 for Steers Hamburgers. Calculate how her salary increase will affect her demand for Steers Hamburgers and as what type of product she classifies it.

25.515*35.0%15

%35.0

%

%

Q

QY

QE DY

25.515*35.0%15

%35.0

%

%

Q

QY

QE DY

Minderwaardige produk Inferior product

OUTCOMES

Types

Categories

Define

Calculate Point Arc

Interpret

Factors

Impact on actions Consumer Producer

UITKOMSTES

Tipes

Kategorieë

Definieer

Bereken Punt Boog

Interpreteer

Faktore

Impak op aksies van Verbruiker Produsent

EXP OF DEMAND

The cross price elasticity of demand is …

Formula:

Relative change

Measures consumer’s reaction to price change of related goods

EXP VAN VRAAG

Die kruis prys elastisiteit van vraag is…

Formule:

Relatiewe verandering

Meet verbruikers reaksie op prys verandering van verwante produkte

B

DAD

xp P

QE

%

%

Bproduct of P in the change %

Aproduct of demanded Q in the change %

CROSS PRICE ELASTICITY KRUIS-PRYS-ELASTISITEIT

0

KOMPLEMENTE

Pa Qa Qb

Pa Qa Qb Teenoorgestelde Effek

(Pa,Qb)

SUBSTITUTE

Pa Qa Qb

Pa Qa Qb Dieselfde Effek

(Pa,Qb)

─ +

DETERMINANTS (DEMAND)DETERMINANTE

(VRAAG)

DETERMINANTS (SUPPLY) DETERMINANTE (AANBOD)

SOUTH AFRICAN WORKBOOK FOR ECONOMICS • Chapter 3

Question 3 Question 10