ECSENOMICS Chapter 4 Applications of supply and demand McGraw-Hilllrwin CopyrightC 2001 The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 4 Applications of Supply and Demand
ECSENOMICS Elastic Demand Shows Large S Quantity Response to Price Change T-25 Figure 4-1 200 120P2 D. B 8100 80上P D 60 40 Q 0 04080120160200240280320360 Quantity McGraw-Hilllrwin CopyrightC 2001 The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. T-25 Figure 4-1 Elastic Demand Shows LargeQuantity Response to Price Change
ECSENOMICS Price Elasticity of Demand Falls into Three Categories T26 Fi iguI (a) Elastic Demand (b) Unit-Elastic Demand ()Inelastic Demand 1.000 1.00 A 50 0.50 D Quantity(millions) Quantity(millions) Quantity (millions) McGraw-Hilllrwin CopyrightC 2001 The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Price Elasticity of Demand Falls into Three Categories T-26 Figure 4-2
ECSENOMICS Perfectly Elastic and Inelastic demands T27 Figure 4-3 200 D Perfectl inelastic 150 demand 100D Perfectly elastic demand 0 100 300 Quantity McGraw-Hilllrwin CopyrightC 2001 The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Perfectly Elastic and Inelastic Demands T-27 Figure 4-3
ECSENOMICS Slope and Elasticity Are Not the Same Thing T28 Figure 4-4 Elasticity of Straight Line En>I ED <I R 2 McGraw-Hilllrwin CopyrightC 2001 The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Slope and Elasticity Are Not the Same Thing T-28 Figure 4-4
ECSENOMICS A Simple rule for Calculating the Demand elasticity T29 Figure 4-5 A1◇ D Q 123 McGraw-Hilllrwin CopyrightC 2001 The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. A Simple Rule for Calculating the Demand Elasticity T-29 Figure 4-5
ECSENOMICS Supply elasticity Depends upon Producer Response to Price T30 Figure 4-6 Supply Elasticities P (a)Es=0 (b)Es=I Q Q ntity McGraw-Hilllrwin CopyrightC 2001 The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Supply Elasticity Depends upon Producer Response to Price T-30 Figure 4-6
ECSENOMICS Prices of Basic Farm Products Have Declined sharply T31 Figure 4-7 2,4 2.0 Farm prices divided by consumer price index 1,6 1,2 三 Trend line declining at 0.8 ⊥L 1950 1960 1970 1980 1990 2000 McGraw-Hilllrwin Source: Bureau of labor Statistics
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Prices of Basic Farm Products Have Declined Sharply T-31 Figure 4-7 Source: Bureau of Labor Statistics
ECSENOMICS Agricultural Distress Results from Expanding Supply and price-Inelastic Demand T32 Figure 4-8 DD D Quantity McGraw-Hilllrwin CopyrightC 2001 The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Agricultural Distress Results from Expanding Supply and Price-Inelastic Demand T-32 Figure 4-8
ECSENOMICS Crop-Restriction Programs Raise Both Price and Farm Income T33 Figure 4-9 After crop restrictions Before crop restrictions D S X Quantity McGraw-Hilllrwin CopyrightC 2001 The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Crop-Restriction Programs Raise Both Price and Farm Income T-33 Figure 4-9
