Elasticity Miscellaneous
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About Elasticity Miscellaneous
About the Teacher
Grace Moulton
Jay Moulton is a business veteran. In short:
- Corporate finance and turnaround expert in U.S. and Canada
- CEO or operator of numerous companies in many industries
- 30 years of actually applying business economics principles
- Successfully led and invested in several leveraged buyouts
- Director or advisor to 30+ different companies
- Experience in both for-profit and not-for-profit sectors
- Producer of 700 professional videos and several TV shows
- Author of six economics and business strategy books
- Graduate of Harvard Business School MBA program
- Graduate of The Royal Military College of Canada
- Professional electrical engineer
- Governor of the Harvard Club of British Columbia
Elasticity Miscellaneous
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Elasticity is defined as the magnitude of a change in the quantity consumed due to a change in price, income or the price of a related good.
This video reviews the concept of elasticity of supply, and describes price elasticity of supply including: perfectly inelastic supply, inelastic supply, unit elastic supply, elastic supply and perfectly elastic supply.
For goods with perfectly inelastic supply, a change in price leaves the quantity supplied unchanged. An easy way to remember this is that the supply curve looks like the I in “inelastic.”
Goods with inelastic supply have elasticity less than one. Remember that the price elasticity of supply equals the percentage change in supply divided by the percentage change in price.
Goods with unit elastic supply have elasticity equal to one. In other words, any increase in price is matched by a similar increase in quantity supplied and any decrease in price is matched by a similar decrease in quantity supplied.
Goods with elastic supply have elasticity greater than one. In other words, a small increase or decrease in price leads to a dramatic change in quantity supplied.
For goods with perfectly elastic supply, at a given price an infinite quantity is supplied.
This video describes tax incidence, exploring who pays the price of a new tax - consumers or producers.
Buyers respond to prices including tax because that is the full price the buyers pay. Sellers respond to prices excluding tax because the net price is the price that sellers receive when they sell a taxed good.
When a good that has a perfectly inelastic demand curve is taxed, the buyers pay the full effect of the tax.
When a good that has a perfectly elastic demand curve is taxed, the suppliers pay the full effect of the tax.
When a good that has a perfectly elastic supply curve is taxed, the buyers pay the full effect of the tax.
When a good that has a perfectly inelastic supply curve is taxed, the suppliers pay the full effect of the tax.
Some taxes will have an affect on both buyers and sellers in a market. In this case, the equilibrium price will drop. The amount that it drops depends on how the tax affects both the buyers and the sellers.
Demand and Supply Changes Affect Equilibrium
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Learning objectives for this chapter - How Income Flows
In a free market, all other things being equal, price acts as a control to balance supply and demand for goods.
If demand for a good increases, the demand curve shifts right. If there has been no change in supply, the equilibrium price rises. If demand for a good decreases, the demand curve shifts to the left.
A decrease in supply means that the supply curve shifts to the left. If there has been no change in demand, the equilibrium price rises. An increase in supply means that the supply curve shifts to the right.
Both the supply and demand curve shift to the right. The new equilibrium price can either increase, decrease, or remain the same, depending on curve shape and how much each curve shifts.
Both the supply and demand curve shift to the left. The new equilibrium price can either increase, decrease, or remain the same depending on curve shape and how much each curve shifts.
The demand curve shifts to the left. The supply curve shifts to the right. The new equilibrium price falls.
The demand curve shifts to the right. The supply curve shifts to the left. The new equilibrium price rises.
Producer Surplus, Consumer Surplus
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Learning Objectives - Producer Surplus, Consumer Surplus
The video reviews how consumers and producers benefit when they trade. Using an example of a Western omelet that is not on the restaurant menu, consumer surplus and producer surplus is calculated.
Consumer surplus is the difference between the price that a consumer was both willing and able to pay and the price that the consumer actually paid.
As an example of both producer and consumer surplus, imagine that a customer in a restaurant asked for a Western omelet that was not on the menu.
Learning Objectives - Producer Surplus, Consumer Surplus
Miscellaneous
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The video illustrates a consumer’s utility maximization that is subject to a budget constraint.
Consumers maximize utility subject to a budget constraint. In this example, we compare food and clothing.
Consumer Choice Miscellaneous
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Learning objectives for this chapter - How Income Flows
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