Introduction to elasticity

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That will be how much?

Imagine going to your favorite coffee shop and having the waiter inform you the pricing has changed. Instead of \$3 for a cup of coffee, you will now be charged \$2 for coffee, \$1 for creamer, and \$1 for your choice of sweetener. If you pay your usual \$3 for a cup of coffee, you must choose between creamer and sweetener. If you want both, you now face an extra charge of \$1. Sound absurd? Well, that is the situation Netflix customers found themselves in—a 60% price hike to retain the same service in 2011.

In early 2011, Netflix consumers paid about \$10 a month for a package consisting of streaming video and DVD rentals. In July 2011, the company announced a packaging change. Customers wishing to retain both streaming video and DVD rental would be charged \$15.98 per month, a price increase of about 60%. In 2014, Netflix also raised its streaming video subscription price from \$7.99 to \$8.99 per month for new U.S. customers. The company also changed its policy of 4K streaming content from \$9.00 to \$12.00 per month that year.

How would customers of the 18-year-old firm react? Would they abandon Netflix? Would the ease of access to other venues make a difference in how consumers responded to the Netflix price change? The answers to those questions will be explored in this chapter: the change in quantity with respect to a change in price, a concept economists call elasticity.

Introduction to elasticity

In this chapter, you will learn about:

• Price Elasticity of Demand and Price Elasticity of Supply
• Polar Cases of Elasticity and Constant Elasticity
• Elasticity and Pricing
• Elasticity in Areas Other Than Price

Anyone who has studied economics knows the law of demand: a higher price will lead to a lower quantity demanded. What you may not know is how much lower the quantity demanded will be. Similarly, the law of supply shows that a higher price will lead to a higher quantity supplied. The question is: How much higher? This chapter will explain how to answer these questions and why they are critically important in the real world.

To find answers to these questions, we need to understand the concept of elasticity. Elasticity is an economics concept that measures responsiveness of one variable to changes in another variable. Suppose you drop two items from a second-floor balcony. The first item is a tennis ball. The second item is a brick. Which will bounce higher? Obviously, the tennis ball. We would say that the tennis ball has greater elasticity.

Consider an economic example. Cigarette taxes are an example of a “sin tax,” a tax on something that is bad for you, like alcohol. Cigarettes are taxed at the state and national levels. State taxes range from a low of 17 cents per pack in Missouri to \$4.35 per pack in New York. The average state cigarette tax is \$1.51 per pack. The 2014 federal tax rate on cigarettes was \$1.01 per pack, but in 2015 the Obama Administration proposed raising the federal tax nearly a dollar to \$1.95 per pack. The key question is: How much would cigarette purchases decline?

Taxes on cigarettes serve two purposes: to raise tax revenue for government and to discourage consumption of cigarettes. However, if a higher cigarette tax discourages consumption by quite a lot, meaning a greatly reduced quantity of cigarettes is sold, then the cigarette tax on each pack will not raise much revenue for the government. Alternatively, a higher cigarette tax that does not discourage consumption by much will actually raise more tax revenue for the government. Thus, when a government agency tries to calculate the effects of altering its cigarette tax, it must analyze how much the tax affects the quantity of cigarettes consumed. This issue reaches beyond governments and taxes; every firm faces a similar issue. Every time a firm considers raising the price that it charges, it must consider how much a price increase will reduce the quantity demanded of what it sells. Conversely, when a firm puts its products on sale, it must expect (or hope) that the lower price will lead to a significantly higher quantity demanded.

What is divided
It help us to no how to do with our money
Alfusainey
Demand curve us a graph showing the relationship between the price and quantity of a commoditiy demand
Alfusainey
Demand schedule is define as a table showing the relationship between prices and the quantity of that commoditiy demanded
Alfusainey
Demand may be defined as a quantity of good or services that consumers are walling and able to buy at a alternative prices
Alfusainey
The law of demand states that all things being equal the higher the price the lower the quantity that will be demanded vice versa
Alfusainey
The law of supply states that all things being equal the higher the price the higher the quantity of a commoditiy that will be supplied vice versa
Alfusainey
what is money
money is defined as the medium of exchange
jackie
money is anything that serves as a medium of exchange,measure of value and standard for deferred payment
Chinenye
money is legal tender that is use for buying good n service
Nak
Money is anything that has general acceptability as a medium of exchanging dabt
Alfusainey
Money is a legally or socially binding conceptual contract of entitlement to wealth, void of intrinsic value, payable for all debts and taxes, regulated in supply.
Nana
money is accepted material for buying and selling and also for payment of dept
Dora
what is economics
what is the meaning of term depreciation
Niyogushimwa
I don't know tell me pls
Manuel
decrease in the valaue of currency is called depreciation.
Asit
managing the scarce resources is called economics 😉
Asit
definition of economics according to different scholars
Economics is a science that studies human behavior as a relationship between end and scarce means which have alternative uses:by Davern spot
Dora
am I correct?
Dora
Yeah you tried
Donkiss
reason why we study economics
what is economics
economics is defined as the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.
Semiat
what is a gross domestic product
Explain what is a production possibility curve
A curve that indicates the various production possibilities of two commodities when resources are fixed...
Geoffrey
what is market?
ware the Byers and seller's that please is called market
suresh
a place where buyers and sellers meet
Tariro
I don't like this market definition.
Jasmin
market is any arrangement whereby buyers and sellers are brought together for the purpose of transacting business. It could be a geographical location or any other means such as internet, mobile phone etc. as long as buyers and sellers are brought together for the purpose of exchange.
Agusimba
A market is a place where buyers and sellers buy and sell goods through bargaining.
Jasmin
yes ,you are correct Agusimba sir.
Jasmin
exception of the low of demond
short run AC curves?
you mean shirt run cost curves?
REBECCA
A short-run cost curve shows the minimum cost impact of output changes for a specific plant size and in a given operating environment. Such curves reflect the optimal or least-cost input combination for producing output under fixed circumstances.
REBECCA
nooo am not from India why!?
Godwin which level of education are you please
Millionaires
millionaires am in SHS 2
Godwin
who was the father of economic ?why?
Rationing and hoarding
how do the size of a country's population affect labour force