E - September 16 - Chapters 5 and 6(1)
Page 1: Elasticity Introduction to Microeconomics
Introduction to the concept of elasticity in economic terms, emphasizing its significance in microeconomics.
Page 2: Informal Running Course Evaluation
Continuous feedback is encouraged for enhancing student learning experiences.
Feedback is anonymous and does not affect grades.
A summary will be shared later about what works and what areas need improvement.
Page 3: A True Story from Phoenixville, PA
The coffee shop increased prices due to higher costs rather than firing workers.
Cost comparisons:
Eggs: 2021 - $17.99, 2022 - $66.89 (271.82% increase)
Whipped Cream Cheese: 2021 - $63.90, 2022 - $114.91 (79.83% increase)
Butter: 2021 - $79.30, 2022 - $137.95 (73.96% increase)
Additional examples included hot cups, aluminum foil sheets, illustrating significant price changes.
Page 4: How Might Consumers Respond?
Consumers may reduce purchases of coffee, egg sandwiches, etc.
Responses depend on income, preferences, and availability of substitutes.
Additional data required to analyze consumer behavior thoroughly.
Page 5: Netflix Pricing
In 2011, Netflix offered subscriptions at $10 per month for streaming and DVD rentals.
DVD rentals are no longer available.
Page 6: Netflix Pricing and Subscriber Growth
Subscribers increased from 21.5 million in 2011 to 219.7 million in 2021.
A decline in subscriptions was observed in 2022, although total subscribers were still higher than the previous year.
Page 7: Netflix Pricing and Subscriber Growth
Questions to consider:
Reasons for subscriber increases despite price hikes.
Geographic factors influencing subscriptions.
Impact of account sharing on subscription rates.
Economists at Netflix analyze pricing impacts on revenue using elasticity.
Page 8: Elasticity (and You!)
Elasticity: measure of responsiveness of one variable to changes in another.
Types of elasticities include:
Price Elasticity of Demand: responsiveness of quantity demanded to price changes.
Price Elasticity of Supply: responsiveness of quantity supplied to price changes.
Income Elasticity of Demand: responsiveness to changes in consumer income.
Cross Price Elasticity of Demand: responsiveness to changes in the price of another good.
Illustration: Tennis ball vs. brick to explain elasticity concepts.
Page 9: Calculating Elasticity (Midpoint Method)
Formula for Price Elasticity of Demand:
Price Elasticity of Demand = |(Q2 - Q1) / ((Q2 + Q1)/2)| / |(P2 - P1) / ((P2 + P1)/2)|
Implications:
1: Elastic Demand
Between [0, 1): Inelastic Demand
= 1: Unitary Elastic Demand
Page 10: Factors Impacting Elasticity
Demand Factors:
More elasticity if close substitutes are available.
Goods defined narrowly show more elasticity.
Luxuries are more elastic compared to necessities.
Elasticity varies between the long term and short term.
Supply Factors:
Number of producers available.
Ability to store and spare capacity.
Production period considerations.
Underlying costs of production affect supply elasticity.
Page 11: Price Elasticity by Goods
Demand elasticity examples:
Housing: 0.12 (1.2% decrease in demand)
Transatlantic Air Travel (Economy): 0.12 (1.2% decrease)
Other goods listed with respective elasticity values and corresponding demand decreases for a 10% price increase.
Page 12: Price, Quantity, and Revenue Analysis
Elasticity Implications:
Elastic Demand: % rise in Price leads to a larger % drop in Quantity Demanded. -> Total Revenue declines.
Inelastic Demand: % rise in Price leads to a smaller % drop in Quantity Demanded. -> Total Revenue increases.
Unitary Elastic: % changes in Price and Quantity Demanded are equivalent; Total Revenue remains constant.
Page 13: Other Elasticities
Income Elasticity of Demand:
Formula indicating normal goods (> 0) and inferior goods (< 0).
Cross Price Elasticity of Demand:
Indicates whether two goods are substitutes (> 0) or complements (< 0).
Page 14: Pricing and Quantity Demanded for Smart Phones
Price vs. Quantity data for smart phones.
Calculation of price elasticity using midpoint method between specified points and categorizing elasticity type.
Factors influencing smart phone demand.
Page 15: Tuition and Enrollment at Villanova
Tuition increases and corresponding enrollment data from 2019 to 2021.
Applying midpoint method to calculate price elasticity of demand between provided years.
Discuss concerns that university administrators have regarding tuition increases.
Page 16: Demand Elasticity Comparison
Decision on which good has more elastic or inelastic demand
Page 17: Breakfast Cereal VS. Sunscreen
Sunscreen Demand: More inelastic due to fewer substitutes available.
Page 19: Blue Jeans VS. Clothing
Blue Jeans Demand: More elastic due to narrow definitions and preference.
Page 21: Insulin VS. Caribbean Cruises
Cruises Demand: More elastic as it is considered a luxury good.
Page 23: Gasoline Today VS. Gasoline in Five Years
Current Demand: More inelastic as substitutes are not available today; future demand may show more elasticity due to availability of alternatives.
Page 25: Demand, Consumer Choice, and Public Choice Theory
Introduction to the following concepts.
Page 27: Budget Lines
Budget line explains consumption choices based on budget constraints and prices.
Page 28: Example of Budget Constraints
Illustrates choices among water and chewing gum affecting budget decisions.
Page 32: Slope of the Budget Line
The slope indicates the rate of trade-off between goods consumed.
Page 34: Utility Concepts
Utility: Satisfaction from consuming goods/services.
Dissatisfaction: Lack of ability or need to consume desired goods.
Page 35: Diminishing Marginal Utility
Concept explaining that marginal utility typically decreases with increased consumption.
Page 40: Maximizing Total Utility
Goal of consumers is to maximize utility through optimal budget allocation across goods/services.
Page 41: Marginal Utility Theory
Focuses on equalizing marginal utility per dollar across goods.
Page 45: Public Choice Theory
Economic preferences expressed through majority voting.
Page 47: Majority Voting Example
Individuals vote based on personal benefit versus cost for communal decision-making regarding community projects.
Page 49: Group Project and Class Schedule
Upcoming review sessions and test schedules outlined for further academic engagement.