5 Market Outcomes and Tax Incidence

• They all have their headquarters in Seattle.

• Starbucks supplies coffee from coast to coast and seems to be everywhere someone wants a cup of coffee.
• Nordstrom, a giant retailer with hundreds of department stores, supplies fashion apparel to meet a broad spectrum of individual demand, from the basics to designer collections.
• Bill Gates and other investors in the company have made a lot of money from the demand for Microsoft products.

• These words are used by economists when describing an economy.
• Many people think that the price of the good is determined by the seller.
• Our first instinct is usually to wonder about the price of something rather than how much someone will pay for it.

• Our ability to fully appreciate how prices are determined is undermined by this one-sided impression of the market.
• This chapter explains how markets work and the nature of competition.

• The formal model of demand and supply was introduced to shed light on the process.
• We look at demand and supply separately.
• We combine them to see how they interact to establish a market price and determine how much is produced.

• There is a rush at target on Black Friday.

• Markets bring trading partners together.

• Consumers are motivated by self-interest and must decide how to use market forces that guide their money to choose the goods that they need or want the most.

• Goods and services are exchanged in a market economy through established prices.

• The levels of demand for a product and how much is supplied affect those prices.
• When demand is low, hotel rates near Disney World are reduced in the fall and peak in March.
• If spring break takes you to a ski resort, you will find a lot of company and high prices.
• Ski resorts have a lot of lodging available at great rates if you are looking for an outdoor adventure.

• Many parents know how expensive peak season is.

• The supply of oil and the price of gasoline can be disrupted due to political unrest in the Middle East.
• Consumers respond to higher gas prices by changing their driving habits or buying more fuel efficient cars.

• Inform the story and demand it.
• We begin our exploration of supply and demand by looking at markets.

• A market is formed when buyers and sellers come together.
• The buyers and sellers both create demand for the product.
• The price and quantity of a particular good or the amount of a service is determined by the interaction of buyers and sellers in a market.

• Goods and services are exchanged.
• When there are so many buyers and sellers that each are online, there are some markets that operate in brick and mortar stores.
• The Place Market in Seattle is a collection of markets spread across 9 acres.
• It has brought together buyers and sellers of fresh, organic, and output for a hundred years.

• The markets at Pike Place are competitive because of the large number of buyers and sellers.

• The impact is very small.

• Similar goods are sold by each vendor at the market.
• No single buyer or seller has any influence over the market price because they are just a small part of the whole market.
• A highly competitive market is created by the two characteristics of similar goods and many participants.

• The price and quantity of a good are determined by the market rather than by any one person or business.

• Let's look at the sales of salmon at the market.
• Dozens of vendors sell salmon at this market.

• It's the same for those buying salmon.
• Customers can influence the seller to find salmon at the remaining vendors.

• No single buyer or seller has any influence on the price of salmon.
• The market for good or service by exercising for salmon is a competitive one.

• The cost of taking the elevator to the top of the building is not cheap.
• Many customers buy tickets because they think the view is worth the price.

• There is no other place in New York City that has such a great view.
• When sellers produce goods and services that are different from their competitors, they gain some control over the price that they charge.

• The more unusual the product, the more control the seller has over the price.
• The market is imperfect when a seller has control over the price.
• The seller has a lot of pricing power because of specialized products, such as popular video games, front- row concert tickets, or dinner reservations at a trendy restaurant.

• There are many other types of markets in between the competitive environment at the Pike Place Market and the lack of competition in the Empire State Building.
• The market for fast- food restaurants is highly competitive but sells products that are not the same.

• In later chapters, we'll talk about different market structures, such as monopoly.
• The Empire State Building has one of the best views in New York City and we will keep our analysis focused on supply and demand.

How much market power does each firm have?

• Each gas station sells the same product and competes for the same customers, so they charge the same price.
• The market is competitive.

• Individual stations have some market power.

• It would take a long time for residents to find another furni ture store.
• The small town store can charge more than other stores.
• The store has a lot of power.
• This market is not competitive.

• Because consumers can buy fresh produce from many stands at a farmers' market, individual vendors have very little market pricing power.

• They need to charge the same price in order to get customers.
• The market is competitive.

• When a group wants something badly enough to pay or trade for it, there is demand.
• The price of the good or service can affect how much an individual or group buys.

• When the price of a good increases, consumers are more likely to buy something else.
• If the current price of salmon is $5 per pound, many consumers will buy something else.

• The price of salmon went up to $20 per pound.
• As price goes up, quantity demands go down.
• As price goes down, quantity demanded goes up.

• The law of demand falls when the price goes up.

• Table 3.1 shows the relationship between Ryan and Seacrest.
• Ryan won't buy salmon when the price is less than $25.00 per pound.
• The quantity was demanded.

• The amount that Ryan buys is related to the price.

• Ryan demands 4 pounds per month at a price of $10.00.
• He wants 3 pounds if the price goes up to $12.50 per pound.

• Ryan buys less salmon when the price goes up.
• He buys more when the price falls.
• Ryan would demand 8 pounds if the price fell to zero.
• Even if the salmon is free, there is a limit to his demand because he would grow tired of eating the same thing.

• The curve is drawn as a straight line.
• The independent variable is always demanded by economists.

• The downward sloping curve is created by the relationship between the price and quantity demanded.

• He buys 4 pounds of salmon when the price is $10 per pound.

• Ryan reduced the quantity that he buys to 3 pounds.

• The $7.50 figure shows a negative relationship between the price and the quantity demanded.

• We have studied individual demand, but the market is made up of many different buyers.
• We look at the collective demand of all of the buyers in a market.

• Over 100 individuals buy salmon at the individual quantities market.
• To make our analysis sim demanded by each buyer in pler, let's assume that our market consists of only two buyers.

• Ryan buys 4 pounds a month at a price of $10 per pound.
• The market demand curve is determined by adding 2 pounds to Ryan's 4 pounds for a total of 6 pounds.
• Any demand curve shows the law of demand with movements along the curve that reflect a price change's effect on the quantity demanded of the good or service.
• A demand curve can only be affected by a change in price.

• We add the quantity demanded by Ryan and the quantity demanded byMelissa to calculate the market demand for salmon.

• We looked at the relationship between price and quantity demanded.

• The law of demand shows that consumers respond to price changes by changing their purchases.
• Many variables affect how much a good or service is purchased.
• News about possible risks or benefits associated with the consumption of a good or service can change demand.

• The warning would cause consumers to buy less cantaloupes, and overall demand would decline.

• Demand has moved from 6 melons to 3 as the price remains at $5 per cantaloupe.

• The quantity demanded will increase or decrease in response to a price change.

• The demand curve is shifted to the left by a decrease in overall demand.
• The news media might just announce the results of a medical study that says cantaloupe contains a natural substance that lowers cholesterol.

• Eating more demand for it will increase if a new medical study is correct.

• Demand shifted because of changes in consumers' tastes and preferences in our cantaloupe example.
• Demand can be shifted by many different movements along the ables.

• The quantity demanded changes along the demand curve when the price changed.

• When something other than price changes, a shift of the demand curve is indicated by the black arrows.

• When a factor decreases demand, the demand curve shifts to the left.
• When a factor increases demand, the demand curve shifts to the right.

• The price of a substitute good goes down.

• The price of a substitute good goes up.

• The price of a good increases.

• The price of a good falls.

• The good is out of style.

• The good is in good shape.

• There is a belief that the price of the good will decline in the future.

• There is a belief that the price of the good will go up in the future.

• The number of buyers decreases.

• There are more buyers in the market.

• There are variables that can shift demand in Figure 3.4.
• You shift the demand curve to the left if the change reduces how much you buy.
• You shift the curve to the right if the change increases how much you buy.

• You have more to spend when your income goes up.

• Your income affects your demand.

• Consumers are going to buy more constant.

• A meal at a restaurant is an example of a normal good.
• The demand curve shifts to the right when income goes up.
• If income falls, the demand for restaurant meals goes down and the curve shifts to the left.

• Consumers with more purchasing power will purchase less inferior goods.
• Rooms in boarding houses, as opposed to one's own out of necessity, and hamburger and ramen noodles, as opposed to filet choice, are examples.

• Consumers buy less of an inferior good when their income goes up.
• You can often find examples of inferior and normal goods in the form of different brands within a specific product market.

• The price of related goods can shift the demand curve.

• The demand for other goods is influenced by certain goods.

• A photo needs to be printed in color.
• When a price is down, what happens?

• You would expect the quantity demanded to go down.

• Substitute goods work in opposite ways when the price of a substitute increases.
• When the quantity demanded good increases, the quantity demanded declines, and the quantity demanded alternative good increases.
• If the price of the PS4 goes up and the price of the XBOX goes down, the demand for good goes up.

• The quantity demanded of the PS4 will decline.

• It takes a while for fashion to go in and out of style.
• You can see that fashion changes from season to season and year to year when you walk into a store.
• It is safe to assume that they will go out of style in a few years because they were popular 20 years ago.

• Demand increases when something is popular.

• Demand for it will decrease once it falls out of favor.
• The demand for a particular good can be altered by fluctuations in tastes and preferences.

• Changes in fashion trends are purely subjective, but other changes in preferences are the result of new information about the goods and services we buy.
• Positive medical findings determine it.
• Consumers' tastes in fashion at the time.

• A scene from the movie shows the difference between movements along the demand curve and a shift of the entire demand curve.

• The hula hoop will be sold for $1.79.

• Business is slow.
• Tim Robbins plays the president of the company in the movie and he plays with a hula hoop.
• Suddenly, sitting behind a big desk waiting to hear about sales, everyone wants a hula hoop and there is a run on the new toy.
• The price has changed and preferences have changed, so demand has increased.
• Until the hula hoop is free with any pur is born, the hula hoop craze is on.
• The toy store owner believes that the entire demand curve has been shifted to attract consumers because of the generous offer.
• The toy store ordered new hula hoops into the alley.

• This example shows how the price of a boy who is skipping school can change.
• The demand curve can't be shifted by picking up the hula.
• When an outside event lets out, a crowd of students round the corner and human behavior ensues.

• If people learn that eating cantaloupe lowers cholesterol, they will demand more melon.

• Expectations about the future influenced your current demand.
• We are likely to buy more today to beat the price increase if we expect a price to be higher tomorrow.

• The result is an increase in demand.

• What if a pizza place likes to run a late- night special?
• The owners want you to give them some advice.
• He proposes two marketing ideas.
• The price of large pizzas should be reduced.

• Offer two bottles or cans of soda with every large pizza and reduce the price of a good.

• Consider why late- night specials exist.
• The pizzeria has to encourage late night patrons to buy pizzas because most people prefer to eat dinner early in the evening.
• When regular prices would leave the establishment largely empty, "Specials" are used.

• Look at the question.
• The owners want to know which option would increase demand the most.
• The owners are looking for something that will increase demand.

• The first option is a reduction in the price of pizzas.
• The option is graphically shown on the previous page.
• A reduction in the price of a large pizza can cause a change in demand.

• The second option is a reduction in the price of a good.
• Let's look at the option graphically.
• The entire demand curve shifts due to a reduction in the price of a good.
• This is the correct answer because the question asks which marketing idea would increase demand more.

• The other answer, cutting the price of pizzas, will cause an increase in demand.

• If you move along a curve instead of shifting it, you won't analyze it correctly.

• Current demand will decrease if there is an expectation of a lower price in the future.

• The market demand curve is the sum of individual demand curves.
• Market demand can be increased by more individual buyers entering the market.
• 3 million people are added to the United States' population each year through immigration and births.
• The existing population of 325 million has the same needs and wants.
• New people add 1% to the overall size of existing markets on an annual basis.

• Consider two markets, one for baby products and the other for health care, including medicine, cancer treatments, hip replacement surgery, and nursing facilities.
• In Italy, where the birthrate has plummeted over several generations, the demand for baby products will decline and the demand for health care will expand.
• Shifts in demand are a result of demographic changes in society.
• Population trends play an important role in determining whether the market is expanding or contracting.

• Excise taxes are taxes on a single product or service and sales taxes are taxes on most goods and services.
• Consumers have to pay a higher tax in order to get the good.
• Lower taxes reduce the cost to consumers.

• Our understanding of markets is incomplete without also analyzing supply.
• Producers are interested in selling fresh salmon at the market.

• They move in opposite directions.
• They move in the same direction.
• If the market price was $2.50 per pound, few producers would sell it, but many would.
• The amount of a good or service quantity is increased by higher prices.
• The quantity that producers are willing supplied to decrease is caused by lower prices.

• Producers respond to price increases with more for sale.

• The quantity supplied also goes down when the price goes down.
• The law of supply is a direct relationship between price and quantity.
• Over a wide range of goods and settings, this law holds true.

• Sol Amon, owner of Pure Food Fish, sells salmon at different prices depending on the price of a good.

• Sol is willing to sell 800 pounds if the market price is $20.00 per pound.
• 500 pounds is Sol's quantity.
• He will give 400 pounds if the price falls to $10.00.
• Sol doesn't offer as much salmon when the price falls.
• He is constantly adjusting the amount he gives.
• Sol's profit from selling salmon goes down as the price goes up.
• Sol has to find a way to make up for the lost income because he depends on selling seafood.

• Sol and the other seafood vendors have to adjust their prices in the market.
• Sol offers more salmon when the price goes up and less when it goes down.

• At those prices.

• The higher the price, the more willing the sellers are to supply the market.

• The law of supply is shown in the figure $5.00 (200, $5.00) by showing a positive rela $25.00 (100, $2.50) between price and quantity supplied.

• Pure Food Fish will increase the quantity it supplies to the market from 400 pounds to 500 pounds when the price of salmon increases.

• Let's assume that each price is the same.

• Adding together the quantity supplied by individual vendors is how market supply is calculated.
• The total quantity supplied is shown in the last column of the table.

• At a price of $10.00 per pound, City Fish supplies 100 pounds of salmon, while Pure Food Fish supplies 400 pounds.
• The total market supply is determined by adding City Fish's 100 pounds to Pure Food Fish's 400 pounds.

• Imagine if beverage scientists at Starbucks found a way to brew a richer coffee at half the cost.
• The costs of supplying a cup of coffee would go down because of the new process.

• Lower costs motivate Starbucks to open new stores and sell more coffee.
• The first Starbucks opened in 1971.

• The quantity supplied changes along the existing supply curve when the price changes.

• When something other than price changes, there is a shift in supply.

• The retail price of coffee has not changed.
• We assume that price is constant when we shift the curve.

• An increase in supply has shifted the supply curve to the right.
• The world coffee supply would be reduced by 10% if a Hurricane devastated the coffee crop in Colombia.
• For the rest of the year, the quantity of coffee supplied will be less than the previous year because of the destroyed coffee crop.

• The variable that causes the supply curve to rise is price.
• The quantity supplied will rise or fall in response to a price change.

• The cost of inputs, changes in technology, taxes and subsidies, the number of firms in the industry, and price expectations are some of the factors that affect the supply curve.

• When a factor decreases supply, the supply curve shifts to the left.
• When a factor increases supply, the supply curve shifts to the right.

• The cost of an input increases.

• The cost of an input is going down.

• There is a decrease in the number of sellers.

• The number of sellers increases.

• The price of the product is expected to go up in the future.

• The price of the product will fall in the future.

• The business uses more efficient technology.

• The supply curve shifts to the left if the change reduces the amount of good or service a business is willing to give.
• The supply curve shifts to the right if the change increases the amount of good or service a business is willing to give.

• The production process may be included in the input.

• The production process depends on each of these resources.
• The seller's profit is affected by the cost of inputs.
• If the cost of inputs goes down, profits go up.
• The firm is more willing to give good because of improved profits.

• Starbucks will want to supply more coffee if it can purchase coffee beans at a reduced price.
• Higher input costs reduce profits.
• The salaries of Starbucks store employees are a large part of the production cost.
• Starbucks would have to pay its workers more if the minimum wage is increased.
• Starbucks would be less willing to supply the same amount of coffee at the same price if the minimum wage was raised.

• An improvement in technology can increase output with the same resources or decrease output with fewer resources.
• If a new espresso machine works twice as fast as the old one, Starbucks could serve its customers more quickly, reduce long lines, and increase its sales.
• Starbucks would be willing to produce and sell more espressos at each price in its established menu.
• If the producers of a good discover a new and improved technology or a better production process, there will be an increase in supply.
• The supply Baristas' wages make up a large share of the cost of selling coffee.

• Adding taxes to suppliers is a cost of doing business.
• The cost of doing business goes up if property taxes are increased.
• In some cases, the firm will have to accept the taxes as an added cost of doing business.
• The firm is less profitable because of a tax.
• Lower profits make the firm less willing to supply the product; thus, the supply curve shifts to the left and the overall supply declines.

• If the government wanted to encourage consumption flu shots for high-risk groups like the young and the elderly, it would be a good example.
• Large subsidies to clinics and hospitals would be one approach to production of a good.

• Under the subsidy, the supply curve of immunizations shifts to the right.
• Vaccination rates increase over what they would be in a market without the subsidy.

• The demand curve was shifted to the right by an increase in total buyers.
• The available supply of a good increases when more firms enter the market.
• The supply curve shifts to the right to reflect increased production.
• The supply curve shifts to the left if the number of firms in the industry decreases.

• There are changes in the number of firms in the market.
• If there is a new pizza joint nearby, more pizzas can be produced and the supply expands.
• The number of pizzas produced falls if the pizzeria closes.

• If a seller expects a higher price for a product in the future, they may want to delay sales.
• On Mother's Day, the demand for roses increases, as do the prices.
• They can charge higher prices because of higher demand.

• To be able to sell more flowers during times of peak demand, many florists work longer hours and hire temporary employees.
• The actions allow them to make more deliveries, increasing their ability to supply flowers while the price is high.

• The expectation of lower prices in the future will cause sellers to offer more.
• In the electronics sector, newer and much better products are constantly being developed and released.
• The current technology will soon be replaced by something better and the consumer demand for it will plummet.
• When a product has been on the market for a while, prices tend to fall.
• Because producers know that the price will fall, they supply as many of the current models as possible before the next wave of innovation cuts the price that they can charge.

• In the 1980s, the first personal computers cost as much as $10,000.

• You can buy a laptop computer for less than $500.
• When a new technology is released, prices tend to fall quickly.
• The first PCs made it possible for people to work with information.
• Large mainframe computers that took up an entire room were the only way to do complex programming before the PC.
• Only a few people were able to afford a PC.
• The story is told by supply and demand.

• Consumers find more uses for the new technology.
• The price would usually go up if demand goes up.
• Producers are eager to supply this new market and will ramp up production quickly.
• When the supply expands more quickly than the demand, there is an increase in quantity sold and a lower price.

• Some of the difference between supply and demand is due to differences in expectations.
• Both parties expect the price to go down.
• Suppliers try to get their new products to market as quickly as possible before the price starts to fall.
• The product's willingness to be supplied expands quickly.

• Consumers expect the price to fall so demand is slower.
• Consumers don't want to buy the new technology immediately.
• The longer they wait, the lower the price will be.
• Demand doesn't increase as fast as supply.

• The butterfat is used to make ice cream.
• You made a mistake if you answered b.
• A change in the price of a good can only make people scream for ice cream.

• Price changes are important, but they are not the right answer.
• You need to look for an event that shifts the curve.

• The demand curve will not be affected by a change in ice cream prices.
• choice d is the only possibility.
• The increase in the price of frozen yogurt will cause consumers to switch to ice cream and away from frozen yogurt.
• The demand for ice cream will increase even though the price is the same.

• A medical report shows that chocolate prevents cancer.
• b cannot be the correct answer because a change in the price of the good cannot change supply; it can only cause a movement along an existing curve.
• Choices a and d would cause a change in demand.
• choice c is the only possibility.
• Chocolate is used in the production process.

• When the price of an input goes up, profits go down.
• The result is a decrease in supply.

• We looked at supply and demand separately.
• It is time to see how the two interact.
• How well supply and demand analysis predicts prices and output in the market is the real power of supply and demand analysis.

• The market for salmon needs to be considered again.
• The salmon sold by one vendor is essentially the same as the salmon sold by another and there are many individual buyers.

• At this price, the entire supply of salmon in price at which the market is sold.
• Every producer is able to sell his or her entire stock if he or she wants to, and every buyer who wants salmon is able to find it.
• That quantity was demanded.

• There is a perfectly balanced surplus.

• There is a shortage at prices below the equilibrium price.

• The market is out of balance because of the equilibrium point.

• Salmon is attractive to buyers but not very profitable to sellers at a price of $5 per pound.
• The demand is represented by point B on the curve.
• The quantity supplied, which is represented by point A on the supply curve, is only 250 pounds.
• At $5 per pound, there is an excess quantity of 750 - 250.

• Disequilibrium is created in the market by excess demand.

• We say there is a shortage when there is more demand for a product than the sellers are willing to give.
• At a price of $5 per pound of salmon, there are three different buyers for each pound.

• A shortage is also called for sellers to raise the price.

• When the price reaches $10 per pound, the quantity supplied and the quantity demanded are equal.
• The market is stable.

• Salmon is quite profitable for sellers but not very attractive to buyers.
• 250 pounds is represented by point C on the demand curve.
• 750 pounds is represented by point F on the supply curve.
• The sellers give 500 pounds more than the buyers want.
• Disequilibrium is created in the market by this excess supply.
• There are 3 pounds of salmon for every customer, so anyone willing to pay 15 dollars for a pound can find some.

• When there is a surplus, sellers know that salmon has been oversupplied and they can lower the price.
• More buyers enter the market and purchase salmon when there is a surplus.

• The downward sloping arrow moves from point C to point E along the demand curve.

• The price will fall if the surplus continues.
• The price goes up to $10 per pound.
• The quantity supplied and the quantity demanded are equal and the market is back to normal.

• The process of price adjustment resolves surpluses and shortages in competitive markets.
• The price of salmon goes up when there is a competition to find enough of the fish.
• Businesses that can't sell their product at a lower price must lower their prices in order to reduce inventories.

• There is a vital role for sellers and buyers in the market.
• There is no need for government planning to ensure an adequate supply of the goods that consumers want or need.
• You might think that a decentralized system would cause chaos, but that's not true.
• Buyers and sellers can quickly adjust to changes in prices.
• Balance is brought about by these adjustments.
• There was no market price system to signal that additional production was needed when markets were suppressed in communist countries.

• There are four examples in Figure 3.10 of what happens when the supply curve or demand curve shifts.
• You should develop a sense of how price and quantity are affected by supply and demand when you study these examples.
• We can make a statement about how price and quantity will change when one curve shifts.
• When supply and demand change at the same time, we consider what happens in Appendix 3A.

• There are challenges in determining price and quantity when more than one variable changes.

• The answer is no, as you learned in this chapter.
• The functioning of markets depends on demand and supply.
• We can model market behavior through prices.
• The price at which quantity supplied and quantity demanded are in balance is known as the market equilibrium.

• Every good and service produced has a corresponding buyer who wants to purchase it.
• There is a shortage or surplus when the market is out of balance.
• This condition continues until buyers and sellers have a chance to adjust their quantities.

• In the next chapter, we look at how responsive consumers and producers are to price changes.
• We can determine if price changes have a big effect on behavior.

• If you want to live in a given location, you have to consider not only places to live in, but who might want to live there.
• Many people will buy live there in the future.

• The best locations are in short supply.
• As you shop ply and high demand causes property values in those areas to go up, you may want to consider areas to rise.
• Less desirable locations have lower property values due to the fact that demand is relatively high and the quality of the low and the supply is relatively high.
• You'll want to pay attention to the crime time buyers often have wish lists that far exceed their rate, differences in local tax rates, traffic concerns, budgets, and the costs and benefits that will help noise issues.
• You find the best property.

• If you've never watched a show before, they want you to give up some freedom in order to maintain an attractive neighborhood.
• It's the best economics lessons you'll ever get.
• It's always a good idea to visit the neighborhood when you're new to it, and remember that you can still get a good deal if you're neighbors first.
• Basic economics are used to guide your decision.

• Once you have settled on a neighborhood, you will find that the property values can vary a lot.
• A home along a busy street may sell for half the price of a similar property a few blocks away that backs up to a quiet park.
• Close access to major employers and amenities, such as parks, shopping centers, and places to eat, command a premium, as do properties near a subway line.
• When it comes time to sell, the location of the home will always matter, even if some of these things aren't important to you.

• A market is a group of buyers and sellers.

• When there are so many buyers and sellers that each has a small impact on the market price and output, there is a competitive market.

• Some markets are not competitive.
• mar kets are not perfect when firms have market power.

• The law of demand states that when the price goes up, quantity goes down, and when the price goes down, quantity goes up.

• The curve is sloping downward.

• The demand curve is not shifted by a price change.

• The demand curve is affected by changes in income, the price of related goods, tastes and preferences, price expectations, and the number of buyers.

• The law of supply states that the quantity supplied of a good rises and falls with the price of the good.

• The curve is upward.

• The supply curve is not shifted by a price change.

• The original supply curve is changed by changes in technology, taxes and subsidies, the number of firms in the industry, and price expectations.

• equilibrium is the point between the two forces when supply and demand work together.
• The equilibrium point is where the clearing price and output are determined.

• There is a surplus when the price is above the equilibrium point.
• Suppliers lower their prices in order to make more money.
• Until the equilibrium price is reached, the process continues.

• There is a shortage when the price is below the equilibrium point.
• Suppliers raise the price when the equilibrium point is reached.

What roles do shortages and surpluses play in good?

• The community has unusual demand curves.
• Explain what spring is and what is happening in the diagrams.

• Many motorcycle enthusiasts enjoy riding the song title.

• Determine each of the next two seasons for each scenario.
• If there is an increase or decrease in supply seats at the ballpark, the seats are fixed at 45,000.

• Laser pointers and cats complement each other for a couple of years.

If the price is $20, what would it be?

• The price fluctuates because CD was only available at the company.

• The band's performances dating back to 1995 include recordings of the gasoline in the United States.

• Think about the nature of income when you come up with an answer.
• The supply and demand model can be used to determine which curve shifted and what benefit it provides.

• Assume no determine the equilibrium price for seats for other changes in the market for gasoline.

• The equilibrium price of gasoline was determined by the price of regular in the United States.

• For this part of the question, assume that the market for gasoline does not use any other extraction technology.

• The equilibrium price is $4, and the quantity is 60 quarts.
• The next step is to graph the curves.

• There is excess demand because of the reduction in consumer income.

• Ice cream sellers will raise their prices if the equilibrium price of gasoline goes down.
• As long as the price of gasoline is below $4 at the end of 2008, there is excess demand.
• It will take $4 to get to under $2 per gallon in the United States.

• The cost of production went down.

• The first thing to do is set the supply of gasoline.
• We ply led to a decrease in price.
• We can plug this value back into gasoline in the United States if the average price of a gallon of regular goes under either of the original equations.

• We can see that different causes led to steep it into Q if we look at parts (a) and (b) together.
• We know that the price of $30 is correct because of the decline in demand that we experienced last year.

• We put $20 into QD.

• The yield is 90 - 2(20) is 50.
• The key here is to remember the change into QS.

• There is a demand curve for the related good.

• When there is a shortage of good, the chase more alcohol and therefore demand price will rise in order to find the equilibrium more.

• Life is more complex than that.
• We need to look at what happens when supply and demand shift at the same time.

• There is a chance that the northwestern United States will be hit by a major dry spell.
• The water shortage reduces the amount of salmon that can be raised and the amount of salmon that can be spawned.
• According to a medical journal, people who consume at least 4 pounds of salmon a month live five years longer than those who consume an equal amount of cod.
• There is a twofold change.
• Demand for salmon increases due to new information about the health benefits of eating salmon.

• It is not possible to predict what will happen to the equilibrium point when both supply and demand are changing.
• The region where the equilibrium point must reside can be determined.

• There is a decrease in supply and an increase in demand.
• The effect on the equilibrium quantity can't be determined because we don't know the magnitude of the supply reduction or demand increase.
• There is a set of possible new market equilibria at the points where supply and demand cross.
• The price must rise because each of the possible points of intersection in the purple region occurs at a price greater than $10 per pound.
• The left half of the purple region produces equilibrium quantities that are lower than 500 pounds of salmon, while the right half of the purple region produces equilibrium quantities that are greater than 500.
• If both shifts are of equal magnitudes, the equilibrium quantity may rise, fall, or stay the same.

• More than one variable will change at the same time in the world we live in.
• It is not possible to be definitive when only one variable changes.

• The equilibrium can no longer be identified as an exact point when supply and demand shift.
• This effect combines the supply shift in with the demand shift in (c).
• The equilibrium quantity can either rise or fall depending on the shifts in supply and demand.

• The price could be higher or lower.

• The price could be higher or lower.

• The quantity could be higher or lower.

• They act as 2 in the shaded area.

• Two friends are arguing at lunch.
• The demand for hybrid cars will increase, as will the supply, according to the first friend.

• I agree with the first part of your statement, but I'm not sure about the price.

• They go back and forth, each unable to convince the other, so they turn to you for advice.

• Either of your friends could be right.
• The quantity bought and sold will increase if both supply and demand shift to the right.
• An increase in supply would lower the price, and an increase in demand would raise it.
• You can't predict how price will change without knowing which effects are stronger.
• If the increase in demand is larger than the increase in supply, the price will go up.
• If the increase in supply is larger than the increase in demand, prices will fall.

• The number of hybrid cars is increasing.

• When the temperature plummets, demand for propane goes up and supplies of propane go down.
• A textbook example of a positive demand shock and negative supply shock hitting at the same time is provided by the economic effects of the polar vortex.
• The United States was 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217

• The demand for propane increases when it's cold because more propane is needed to heat homes.

• There are two negative shocks.

• Farmers used more propane in the fall of last year to dry out their crops, which lowered the supply of propane for heating homes.
• The first cold snap disrupted the delivery of propane to holding tanks and then to homes.
• The second negative supply shock was the frozen pipes.

• Large quantities of propane were exported to markets where suppliers could get a higher price because of the low price of propane in the United States.

• Because of the shortage, the supplies that were exported out of the country could have been used in the United States.

• Many record low temperatures are expected.

• The weather is going to be cold.

• If consumer incomes increase by February 14.

• The increase in consumer income increases demand curve to the right, and the decrease in demand shifts the demand curve to the in input prices increases supply and shifts right.
• The supply curve to the right is increased by the decrease in input prices.

• The Equilibrium quantity increases in this question.

• The price falls because of the demand shift.
• A good description is also provided in this example.

• The increase in consumer of the year was when the price was falling and the income was rising.

• Demand and supply regulate economic activity by balancing the interests of buyers and sellers.
• The balance is achieved through prices.
• The quantity demanded to fall is caused by a higher price.
• A lower price causes the quantity supplied to fall and the quantity demanded to rise.
• In this chapter, we look at how decision makers respond to price and income changes.

• Understanding elasticity can help us to determine the impact of government policy on the economy, to vote smarter, and even to make better decisions.
• The faulty logic behind the misconception that sellers charge the highest price helps us understand it.

• People stream videos instead of going out to a movie, students ride their bikes instead of taking the bus, and boyfriends come and go are some of the things that are replaceable in life.
• Ligneini, spaghetti and angel hair all taste the same and can be substituted for one another in a pinch.
• Many people will switch from one good to another if there is a small change in price.

• Many things in life are not replaceable.
• Electricity and a hospital emergency room visit are examples.
• If the price goes up, you won't consume a smaller quantity.
• If the price of electricity goes up, you might try to cut your usage, but you won't be able to generate your own power.
• You could try to treat a serious medical crisis without going to the ER, but the consequences of making a mistake would be enormous.

• In the next section, we look at the factors that make your boyfriend replaceable.

• There is a negative relationship between the price of a good and the quantity demanded.

• If the price of a sweatshirt with a college logo increases by $10 and the quantity demanded decreases by a large amount of quantity demanded, we would say that the demand for those sweatshirts is elastic.

• The demand for sweatshirts is inelastic after a $10 rise in price.

• The existence of a substitute, the share of the budget spent on a good, how broadly defined the market is, and time are some of the factors that influence whether demand will be elastic or inelastic.

• The number of substitute available is the most important factor in price elasticity.
• Market forces tilt in favor of the consumer when there are lots of substitute products.
• Imagine that a freeze in Florida reduces the supply of oranges.
• The supply of orange juice shifts to the left as a result.
• The price of orange juice goes up when demand stays the same.
• There are many good alternatives to orange juice.
• Prices for juices made from apples, grapes, and cranberries are unaffected by the Florida freeze.
• A consumer can either buy orange juice at a higher price or pay a lower price for fruit juice that may not be his first choice, but is still acceptable.
• Some consumers will switch because of higher orange juice prices.
• Demand is elastic or inelastic depending on how quickly this switch takes place and how much consumers are willing to replace one product with another.
• The demand for orange juice is elastic because there are many alternatives.

• There is no amusement park like Disney.

• The number of close substitute is small because of the unique experience.
• Demand is less responsive to price changes.

• Consumer preferences affect the price elasticity of demand.
• Sports fans are willing to pay a lot of money to follow their passion.
• Professional and amateur golfers play the same courses.

• The opportunity to play golf where professionals play is not cheap.
• A round of golf at the Tournament Players Club at Sawgrass costs close to $300.
• The experience of living out the same shots seen on television tournaments is worth $300 for an avid golfer with the financial means.
• The avid golfer doesn't see other golf courses as a good substitute.
• A less enthusiastic golfer, or one without the financial resources, is happy to golf on a less expensive course even if Bey is not around.

• The pros don't play it on TV.
• The price tag makes demand elastic.
• The buyer's preferences and resources determine whether demand is elastic or inelastic.

• Despite our example of an avid and affluent golfer willing to pay a premium fee to play at a famous golf course, in most cases price is a critical element in determining what we can afford and what we choose to buy.
• If you plan to purchase a 70 inch screen TV, which can cost as much as $3,000, you will probably be willing to take the time to find the best deal.

• A small discount can cause a big change in consumer demand because of the high price.

• Saving 10% equates to a few pennies.

• The will to shop for the best deal indicates that the price matters.

• Inexpensive items on sale are more inelastic in demand.
• The price of a candy bar will fall if it is discounted 10%.
• The incentive to switch is small.
• The price difference doesn't matter to most consumers who still buy their favorite candy.

• The savings gained by purchasing a less desirable candy bar are small compared to the consumer's budget, so demand is inelastic.

• A big- screen TV and a candy bar are luxuries.
• Some goods are necessary.
• You have to pay your rent and water bill, buy gas for your car, and eat.
• Consumers think about the need more than the price when buying a necessity.
• Demand is expected to be relatively inelastic when the need is greater than the price.
• Demand for things like cars, textbooks, and heating oil tend to be inelastic.

• The harder it is to live without a market for a good, the more broadly we define it.
• Without some form of housing, you'd be living on the street, so demand for housing is quite inelastic.

• Saving 10% on a purchase adds up to hundreds of dollars.

• Consumers and sellers respond to market price changes.

• Over time, that response doesn't stay the same.
• Both consumers and sellers are able to find replacements.

• Take the demand for gasoline into account.
• You have to pay the posted price at the nearest gas station when the gas tank is empty.

• There is inelastic demand when there is cheap gas.

• The demand for gasoline iselastic in the case of an empty tank.

• In the long run, we make decisions that reflect our behavior.

• They can shop for lower time when consumers can save money at the pump, or change how often they drive.
• In the long run, we make consumer demand more elastic.

• When consumers have time to fully adjust to market line prices, they can move closer to work.
• The changes reduce the demand for gasoline.
• The demand for gasoline becomes elastic as a result of the flexibility that gives the consumer.

• The share horizon is one of the five determinants of elasticity.

• The number of subs tends to be the most influential factor and dominates the others.
• Table 4.1 will show you how different market situations affect the elasticity of demand.

• The discussion of elasticity has been descriptive.
• To apply the concept of elasticity in decision- making, we need to view it more objectively.
• If the owner of a business is trying to decide whether to put a good on sale, he or she needs to estimate how many new customers would purchase it at the sale price.
• A government needs to know how much revenue it will make from a new tax.
• We can use a mathematical formula to evaluate elasticity.

• The experience of going to a game has few close replacements.

• This is a narrowly defined experience.

• The demand is not elastic.

• The information in a textbook is valuable.

• Older editions and free online resources are not the same.
• Most students buy the required course materials.

• The demand is inelastic because the textbook is more important than the price.

• The demand for a textbook iselastic due to the fact that a textbook is needed in the short run.

• There are many close replacements for Domino's.
• The demand for a narrowly defined brand of pizza elastic is caused by the presence of so much competition.

• It will be relatively to choose from.
• Consumers are sensitive to smaller percentages of savings with large purchases.

• People usually plan their car purchases many months in advance.
• The demand for a narrowly defined model is elastic because of all these factors.

• An example of a pizza shop.
• An owner is trying to get more customers.
• He lowers the price of a pizza by 10% for a month and is happy to see a 30% increase in sales.

• The price elasticity of demand is expressed as a coefficients (3) with a specific sign, and it has a minus sign in front of it.
• The quantity demanded has changed more than the price did.
• The percentage change in the quantity demanded is three times the percentage change in the price.

• A spoof of Magic: The Gathering, The Mystic Warlords of Ka'a is a trading card game that all of the guys enjoy playing.

• The expansion pack is no longer available.

• Stuart, let's make an argument.
• Howard is considering buying an expansion pack.

• They play the game if I tell you that.
• All of the guys are hours of fun and the new expansion packs are only $24.95.

• Make it two.

• The purchase is made in the short run.

• The price drop made a big difference in how much pizza consumers bought.

• Demand is inelastic if a price drop makes a difference in the quantity consumers purchase.

• The sign in front of the coefficients is equally important.

• The law of demand describes a negative relationship between the price of a good and the quantity demanded.
• The negative relationship with a negative sign is reflected in the ED coefficients.
• Consumers buy more pizza when the pizza shop lowers its price.
• The sign of the elasticity of demand is almost always negative because the price of pizza and consumer purchases of pizza generally move in opposite directions.

• Our earlier calculation was simple because we looked at the change in price and the change in quantity demanded from only one direction, that is, from a high price to a lower price and from the corresponding lower quantity demanded to the higher quantity demanded.
• The complete way to calculate elasticity is from 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110

• The elasticity of demand is calculated.
• The quantity demanded increases from 20 to 30 if the price drops from $12 to 6.

• If the price goes up from $6 to $12, the quantity demanded goes up from 30 to 20 or goes down from 30 to 20.

• Percentage changes are usually calculated by using the initial value as the reference point.
• In this example, we used $12 as the starting point and dropped the price to $6, and then used $6 as the starting point and increased the price to $12.
• The percentage changes are different even though we are measuring elasticity over the same range of values.

• The midpoint method is used to express the price elasticity of demand.

• This equation is not complicated like Equation 4.1.
• The percentage changes can be determined by plugging in the initial and ending values for price and quantity.
• Q1 and P1 are the initial values, and Q2 and Q2 are the ending values.

• The change in the quantity demanded, and the change in price, are divided by the average of the initial and ending values.

• The preferred method is the midpoint method.
• Let's return to our pizza demand example.

• If the price goes up from $6 to $12, the quantity demanded goes down from 30 to 20.
• The initial values are $6 and 30.
• The values are P2 and Q2

• If the price goes from $12 to $6, the quantity demands go up from 20 to 30.

• The initial values are P1 and Q1 P2 is $6 and Q2 is 30.

• The price elasticity of demand was calculated using $6 as the initial point.
• The initial reference point was $12 and the ED was -1.0.
• The method splits the difference and uses $9 and 25 pizzas.
• No matter what direction the price goes, the elasticity coefficients will be the same.
• The midpoint method is used by economists to standardize the results.

• The elasticity coefficients are between 0 and -1 using the midpoint method.
• The percentage change in the quantity demanded is less than the percentage change in the price.
• When the percentage change in the quantity demanded is smaller than the percentage change in price, demand is inelastic.
• The price drop doesn't change how much pizza consumers buy from the shop.
• Demand is elastic when the elasticity coefficients is less than -1, and the opposite is true.

• We can see the relationship between elastic and inelastic demand graphically.

• The demand curve flattens as demand becomes elastic.

• Many pet owners report that they would pay any amount of money to help their sick or injured pet.
• The demand curve is a vertical line for these pet owners.
• If you look at the quantity axis in panel a, you will see that the amount of pet care demanded remains constant no matter what the cost is.

• The flatter demand curve is more elastic than the steeper demand curve when it comes to price changes.
• The price does not matter because the demand is inelastic.
• The price is less important than the quantity purchased when demand is inelastic.
• The price is more important than quantity because the demand is elastic.
• The demand is elastic, so price is all that matters.

• No matter what we find in the denominator, the answer will be zero.
• It makes sense.
• The value of ED will always be zero.
• To keep track of the different types of elasticity, refer to Table 4.2 on page 123.

• Consumers of electricity will modify their use of electricity in response to price changes, unlike pet owners who will not change their consumption of health care for their pet no matter what the cost is.
• When the price of electricity goes up, they will use less and when the price goes down, they will use more.
• Buying energy efficient light bulbs or adjusting the thermostat are relatively small lifestyle adjustments that can be made to use less electricity.
• The demand curve in panel is steep, but not completely vertical as in panel.

• The law of demand describes a negative relationship between price and quantity.
• The demand for electricity will always be in opposite directions when the price is changed.

• The price elasticity of demand must be close to zero when demand is inelastic.
• Consider how a 10% increase in electric rates affects most households in the easiest way possible.
• Most people would be a little less, but not 10% less.
• You can change your thermostat, but you still need electricity.
• There is a bigger change in the denominator when the price changes more than quantity.

• When demand is relatively inelastic, the price elasticity of demand is between 0 and -1.

• The degree of responsiveness we see along the quantity axis is indicative of the flexibility of consumer demand for apples.
• The responsiveness can be observed by noting that a relatively elastic demand curve is flatter than an inelastic demand curve.
• Inelastic demand shows no change in demand with an increase in price, and relatively inelastic demand shows a small change in demand with an increase in price.

• The percentage change in QD is large and the percentage change in P is small.
• The demand for apples is elastic.

• The elasticity ED is less than -1.
• There is a negative relationship between price and quantity demanded, so the sign must be negative.
• The consumer becomes more responsive to price changes as the price elasticity of demand moves farther away from zero.
• A small change in the price of apples will have a large effect on the demand for apples.

• When the price drops to $10.00, you will probably become indifferent, as you will be equally satisfied with paying $10 for the $10 bill or not making the trade.
• The magic happens when the price drops to $9.99.

• There is a perfectly elastic demand for a $10 bill.

• We can think of this small price change as having an unlimited effect on the amount of $10 bills demanded.

• When the price drops to $9.99, traders want to buy as many $10 bills as possible.

• When ED is exactly -1, it happens when the percent age change in price is exactly the same as the percentage change in quantity demanded.
• When we discuss the connection between elasticity and revenue later in the chapter, this characteristic of unitary elasticity will be important.
• You might be wondering what an example of a unitary good would be.

• It's not possible to find a good that has a price elasticity of -1 at all price points.
• It is obvious that unitary demand represents the difference between elastic and inelastic demand.

• The letter "E" has three horizontal lines to remind us that demand is flat.

• It is possible to pair the elasticity coefficients with an interpretation of how much price matters.
• The summary is provided in Table 4.2.

• Demand is inelastic when price does not matter.
• When price is the only thing that matters, demand becomes elastic.
• Between the two extremes, the extent to which price matters determines whether demand is inelastic, unitary, or relatively elastic.

• Increased time makes demand elastic.
• When the price goes up from P1 to P2 con sumers can't avoid it, and demand is represented by the perfectly inelastic demand curve D1.
• If your gas tank is almost empty, you must purchase gas at a higher price.

• Consumers are more flexible and drive less in order to buy less gasoline.
• In the short run consumption goes down in the second quarter.

• The price does not matter.

• Price and quantity are equally important.

• The price is the most important thing.

• Over time, demand becomes elastic.

• As a result, the demand curve flattens and the quantity demanded falls to Q3 in response to the higher price.

• Q3 Q2 Q1 have time to purchase a more fuel efficient vehicle or move closer to work, demand shifts to D3 and gas purchases fall even further.
• The quantity demanded falls as the demand curve flattens.

• We want you to understand what you are seeing in the figures.

• Slope doesn't equal elasticity.

• Consider a trip to Starbucks.
• The price of the skinny latte will go from $5 to $4 if you buy it.
• A small price change causes you to make the purchase.
• The demand for skinny lattes is elastic.

• The price elasticity of demand is not always constant, as you can see by the way the price elasticity of demand changes from highly elastic near the top of the demand curve to highly inelastic near the bottom of the curve.
• The numbers in the third, fourth, and fifth columns are based on the formula.

• At $5 the consumer purchases zero lattes, at $4 she purchases one latte, at $3 she purchases two, and she continues to buy one additional latte with each $1 drop in price.
• The price elasticity of demand slowly becomes more inelastic as you progress downward along the demand curve.
• The slope of a linear demand curve is constant.
• In the change in ED, it decreases from -9.1 to -0.1.

• If the elasticity coefficients were zero, there would be perfectly inelastic demand.
• A value of zero means that there is no change in the quantity demanded as a result of a price change.
• Values close to zero reflect inelastic demand, while values farther away reflect more elastic demand.

• Understanding the elasticity of demand for the product you sell is important when running a business.
• Consumer responsiveness to price changes determines whether a firm would be better off raising or lowering its price.
• The price elasticity of demand and the firm's total revenue are explored in this section.

• We need to understand the concept of total revenue.

• The table good is calculated by multi from Figure 4.3 and adds the price of the good column for the total revenue.
• The total revenue is determined by the quantity of good that is sold.

• We can look at the column of elasticity coefficients to determine the relationship after calculating total revenue at each price.
• When we link revenues with demand, there is a trade off.
• When the price is too high, total revenue is zero.

• What happens when the price goes from $5 to $4?
• At $4, the first latte is purchased.
• The total revenue is $4.
• The price elasticity of demand is highly elastic in this range.
• Lowering the price increases revenue.
• When the price goes from $4 to $3, revenue goes up.
• The total revenue increases to $3 with two lattes sold.
• Demand is elastic at the same time.
• When demand is elastic, lowering the price will increase revenue.

• The business has generated more revenue by lowering the price from $4 to $3.

• Lowering the price will increase lost revenue in the elastic region.

• $5 lowering the price won't increase revenue when demand is unitary.

• Lowering the price will decrease revenue by $4 in the inelastic region of $5.

• The business has given up $1 for each unit it sells because it has lowered the price from $4 to $3.
• The red area under the demand curve shows lost revenue.

• The total revenue stays the same when the price goes from $3 to $2.
• The result occurs because demand is unitary.
• When the percentage price change is offset by an equal percentage change in the quantity demanded, there is a special condition.
• Revenue is constant in this situation.
• When the price was $3, the total revenue was $2, which is the same as it is now.
• We can see that the total revenue has reached a maximum.
• The price elasticity of demand is between $3 and $2.
• The finding doesn't mean that the firm will operate at the unitary point.
• Maximizing profit, not revenue, is the ultimate goal of a business, and we have not yet accounted for costs in our calculation of profits.

• Bart came up with the idea of charging admission for people to see the elephant.

• Revenue isn't enough to cover Stampy's food bill.

• Homer raises the price to see the elephant to $100 when he learns that they aren't covering the costs of keeping Stampy.
• The Simpsons can't afford Stampy.

• Homer's plan is to stay away.
• Our understanding of elasticity doesn't generate revenue.

• Bart's admission price of $1 brings Homer's plan to increase the price.
• If Stampy's $300 food bill is covered by the demand to see the elephant, egy would work.
• Homer is not inelastic.
• You could see that it was the right idea for $100.
• Raising the price of a concert, attend a major sporting event, or eat at a higher price would generate more revenue.

Would most of the customers be willing to pay $100 for the chance to see the elephant?

• The country sees hundreds of other animals as off dictated by the law of demand.
• The quantity demanded is reduced by Homer's plan being doomed.
• No one is willing to pay $100.

• Purchase if the quantity falls to zero.

• You are asked to compute price elasticity of demand.

• Ask yourself if the price elasticity of demand for sandwiches is elastic.

• Question: A deli manager decides to lower the price of a featured sandwich from $3 to $2 and she finds that sales increase from 240 to 480 sandwiches.

• Consumers were willing to buy more sandwiches in response to the price drop.
• The price elasticity of demand is calculated using Equation 4.2.

• The percentage change in the quantity demanded is greater than the percentage change in price if the price elasticity is less than -1, demand is elastic.
• The store manager expected this outcome.
• There are many other options for a meal, such as salads, burgers, and chicken, which cost more than the now cheaper sandwich.
• We should not be surprised by the increase in sandwich purchases by price conscious customers.

• A local pharmacy manager decided to raise the price of a 50- pill prescription of amoxicillin from $8 to $10.

• Let's take a look at the potential replacements for amoxicillin.

• Most patients prefer to use the drug prescribed by their doctor.
• The cost of the drug is relatively low.
• The need for amoxicillin is a short- run consideration.
• We believe that the demand for amoxicillin iselastic because of all three factors.
• Let's see if the data supports the intuition.

• We suspected that the price elasticity of demand is high because of the ED near zero.
• The price increase won't cause consumption to fall very much.
• The store manager's plan to bring in more revenue from the sales of amoxicillin is a success.
• The business sold 1,500 units for $8 before the price increase.
• After the price increase, sales decrease to 1,480 units, but the new price is $10, so total revenue is now $14,800.
• The pharmacy made an additional $2,800 in revenue by raising the price of amoxicillin.

• We move into the realm of inelastic demand once we reach a price below unitary demand.
• When the price goes to $1, revenue goes to $4.
• The price elasticity of demand is relatively inelastic.
• As you can see by the blue square, even though the price is going down, it doesn't make a big difference.

• At a price of $2, three units are sold and the total revenue is $2.
• Four units are sold when the price is $1, so the total revenue is $4.
• The business has lost $2 in extra revenue because it doesn't generate enough extra revenue from the lower price.
• The red boxes show the loss in existing sales revenue caused by lowering the price from $2 to $1.
• The blue box only generated $1 in new sales.

• When the demand curve enters the inelastic area, lowering the price decreases revenue.
• This outcome is bad for a business.
• The business has to produce more goods because of the lower price.
• It doesn't make sense to lower prices in the region where revenues decline because making goods is costly.
• No business will operate in the inelastic region of the demand curve.

• Determining the price elasticity of demand for a product or service involves calculating the responsiveness of quantity demanded to a change in the price.
• The chart shows the elasticity of demand for ten products and services.
• The number is always negative because of the negative relationship between price and quantity demanded.

• It allows businesses to have better pricing strategies.

• Consumer demand responds to changes in the price of a single good.
• In this section, we look at how responsive demand is to income and price changes.

• Consumer spending can be affected by changes in personal income.

• The types of purchases you make and how much you spend are influenced by the money in your pocket.
• Someone with a little extra cash can afford to upgrade from a cheap generic product to a more expensive one, for example.
• Different shoppers' budgets are reflected in the grocery store aisle.
• Store brands and name products are competing for shelf space.

• It's calculated by dividing spending.

• The income elasticity of demand can be positive or negative.
• They have a positive income elasticity because the demand for normal goods increases with income.
• If you receive a 20% pay raise and decide to pay an extra 10% on your cable TV bill, the resulting income elasticity is positive, because 10% divided by 20% is 0.5.
• When a good is normal, the result is a positive income elasticity of demand and purchases of the good rise and fall at the same time.

• Goods with income elasticities between 0 and 1 are considered necessities.
• Consumers at any income level must buy clothing, electricity, and gasoline no matter what, because expenditures on items such as clothing, electricity, and gasoline are unavoidable.
• As income increases, purchases of necessities do not rise as fast as they did before.
• Spending on necessities will expand at a slower rate as income increases.

• Income elasticity of demand is created when rising income allows consumers to enjoy more luxuries.

• As the family's income increases, they can afford air travel.
• A small increase in income can cause the family to fly.

• As income expands, the demand for inferior goods decreases.
• The example of macaroni and Air travel is a luxury good.

• As a household's income increases, it is able to afford more variety in its meals.
• The number of times that mac and cheese is purchased decreases.
• The decline in consumption shows that mac and cheese is not as good as it could be.

• The responsiveness of Domino's or Pizza Hut depends on the price of both goods.

• A price rise in one good will cause the quantity demanded of that good to decline.
• Demand for the substitute good will increase because consumers can purchase it for the same price as before.
• Consumers will buy more pizza from Pizza Hut when the price of Domino's pizza goes up.

• If the goods complement each other, the opposite is true.
• A price increase in one good will make the consumption of both goods more expensive.
• The consumption of both goods will decline.
• A price increase for turkeys will cause the quantity demanded of both turkey and gravy to decline, and a price decrease for turkeys will cause the quantity demanded of both turkey and gravy to increase.
• The elasticity of demand is negative.

• If the price of basketballs goes up, it won't affect the quantity demanded of bedroom slippers.
• The cross price elasticity is not positive or negative.

• Cross price elasticity values are listed in Table 4.5.

• The price of a 2- liter bottle of Mr. Pibb would fall from $1.49 to $1.29.
• In the week before the price drop, a local store sells 60 boxes of Red Vines.
• When the price of Mr. Pibb falls, we can calculate the elasticity of demand for Red Vines.

• The percentage change in the quantity demanded of good RV is being measured in response to the percentage change.

• A value of -1.99 is given by Solving for EC.
• The result's negative value confirms our intuition that the decrease in the price of Mr. Pibb causes consumers to buy more Red Vines.

• The answer helps us understand the experiment.

• The prices for tennis players between the ages of 18 and 61 were doubled by the New York City Parks Department.

• Single- pay passes for an hour of court time went from $7 to $15, while season passes went from $100 to $200.

• Data from the Parks Department shows that fewer tennis permits were sold under the new prices.
• Sales of season passes for most players fell by 40% in 2011.

• We can use the data to understand if the price increase raised or lowered revenue.

• The price elasticity of demand was calculated using the formula.

• The coefficients for the one- day and annual passes are between 0 and -1, so demand is relatively inelastic.
• When demand is inelastic and prices increase, total revenue should increase.
• Tennis court revenues increased from 2010 to 2011.

• Many tennis players in New York City were upset with the price increase.
• The data shows that many tennis players decided to keep playing.
• A hobby that many people enjoy is tennis.
• The data confirmed that there are not many good substitute tennis players in New York City.

• A college student eats ramen noodles twice a week and makes $300 a week working part time.

• It is possible to simplify yields - 1.5, 1.25, and $650.

• Normal goods have a positive income elasticity of demand, while inferior goods have a negative income elasticity of demand.
• ramen noodles are an inferior good over this person's range of income, in this example, between $300 and $1,000 per week.
• Your intuition should be confirmed by this result.

• The higher the student's postgraduation income, the more they can replace ramen noodles with other meals that provide more sustenance and enjoyment.

• Like consumers, sellers are sensitive to price changes.
• The price elasticity of supply is different from the price elasticity of demand.

• How much sellers respond to price changes is examined in this section.

• The answer depends on the elasticity of supply.
• Change in price is what oil must be refined for.

• If it is difficult for oil companies to increase their output of gasoline, the quantity of gasoline supplied will not increase much even if the price increases a lot.
• In this case, we say that the supply is unresponsive.
• If the price increase is small and suppliers respond with more gasoline for sale, then the supply is elastic.
• If it is easy to refine oil into gasoline, we will observe this outcome.

• When supply can't respond to a change in price, it's inelas tic.
• There is a fixed amount of land next to the ocean.
• The supply of land can't adjust to the price of oceanfront property.
• The price elasticity of supply is zero and the supply is inelastic.
• The price elasticity of zero means that quantity supplied doesn't change as prices change.

• It takes suppliers a long time to provide additional capacity when a cellular network becomes congested.
• Purchase of land and additional construction costs are required to build new cell towers.
• A local hot dog vendor can quickly add another cart.
• The elasticity of the hot dog vendor's supply is greater than 1.

• The law of supply states that there is a direct relationship between the price of a good and the quantity that a firm supplies.
• The percentage change in the quantity supplied and the percentage change in the price are the same.
• The relationship with a positive sign is reflected in the ES coefficients.

• When we looked at the price elasticity of demand, we found that consumers have to consider a number of factors, including the cost of the item, the amount of time they have to make a decision, and the necessity or luxury of the item.

• The degree of flexibility that producers have in bringing their product to the market is a critical difference.

• Supply tends to be elastic when a producer can quickly ramp up output.
• It is possible to maintain flexibility by having spare production capacity.
• Producers can quickly meet changing price conditions with extra capacity.
• Staying flexible can be done by the ability to store the good.
• Changes in market conditions can be responded to more quickly by producers who have inventories of their products.
• De Beers can change the quantity of diamonds it offers to the market as the price of diamonds fluctuates.
• If demand is strong, hot dog vendors can move quickly from one street corner to another.

• Businesses can't adapt to changing market conditions quickly.
• Nine new holes can't easily be added to a golf course.
• The owner of the golf course can't quickly increase the supply of golfing opportunities because of the constraint.

• Businesses are stuck with what they have on hand.

• A pastry shop can't bake more quickly if they run out of chocolate glazed doughnuts.
• As we move from the immediate run to the short run and a price change persists through time, supply becomes more elastic.
• A golf resort can squeeze extra production out of its current facility by staying open longer hours or moving tee times closer together, but those short- run efforts will not match the production potential of adding another golf course in the long run.

• Figure 4.5 shows how the supply curve is mapped.
• The supply curve is vertical in the immediate run.
• There is no responsiveness when the price changes.
• The supply curve goes from S1 to S2 to S3 as producers get more time to make adjustments.
• The supply curve becomes flatter through time like the demand curve.
• With both supply and demand, the most important thing to remember is that more time allows for greater adjustment, so the long run is always more elastic.

• The price elasticity of supply can be calculated using a formula.
• When a business owner has to decide how much to produce, it's useful to do that.
• The elasticity of supply is a measure of how quickly the producer can change production.
• Producers can quickly adjust production when supply is elastic.
• Despite large swings in price, production tends to remain constant if supply is inelastic.

• Supply is elastic because of increased flexibility and more time.

• The supply curve is at Q1 right now.

• Eventually, in the long run, the firm is able to produce more, and it moves to Q3 in response to higher prices.

• Oil companies can't respond to ris ($100 - $50) quickly.

• ES is 0.16.

• The law of supply has a direct relationship between price and quantity.
• The output rises as the price goes up.
• The output increase is small and reflected in the coefficients.
• Oil companies have a limited ability to respond quickly to rising prices because they can't easily change their production process.
• The inability is reflected in a coefficients that is close to zero.
• Suppliers can't change their output if they have a zero coefficient.
• Suppliers are only able to respond in a limited capacity.

• The price elasticity of supply is the percentage change in the quantity supplied and the percentage change in the price.
• The flexibility of the manufacturing process and the length of time needed to ramp up production are some of the factors that affect the company's ability to change the amount it produces.

• It will take many months for the company to increase production by 20%.
• We can divide the percentage change in the quantity by the percentage change in the price using Equation 4.5.

• This calculation shows that the ply is inelastic.
• The firm is able to increase the quantity by 20% with time.
• Supply is relatively elastic in the long run if we divide 20% by the percentage change in the price.

• The interplay between supply and demand allows us to explain how the economy works.
• We can conduct a deeper analysis of the world around us with an understanding of elasticity.

• Suppose that we are concerned about what will happen to the price of oil as economic development spurs additional demand in China and India.
• Oil producers have a limited ability to adjust production in response to rising prices, according to an examination of the price elasticity of supply.
• Oil wells can be uncapped to meet rising demand, but it takes years to bring the new capacity online.
• Storage of oil reserves is expensive.
• The short- run supply of oil is elastic.

• An increase in global demand from D1 to D2 will cause prices to go up from $50 to $90 per barrel.
• Increasing oil production is difficult in the short run.
• The short- run supply curve is inelastic.
• In the long run, oil producers are able to bring more oil to the market when prices are higher, so the supply curve rotates clockwise, and the market price falls to $80 per barrel.

• The interplay between the price elasticity of demand and the price elasticity of supply determines the magnitude of the price change.
• We have to consider how supply responds to demand.
• We can't just think about the short run consequences of demand and supply shifts; we have to think about how prices and quantity will change in the long run.

• You can see the power of the supply and demand model with this knowledge.

• As producers expand their production capacity, the price will fall to $80 per barrel in the long run.

• A small pumpkin crop is caused by a bad growing season.
• You can use elasticity to explain your answer.

How much would you spend in October and after Halloween?

• Purchasing a pumpkin is a short- run decision to buy a unique product that takes up a relatively small share of the consumer's budget.
• The price elasticity of demand for pumpkins leading up to Halloween tends to be quite inelastic.
• A small crop causes the entire supply curve to shift left.
• The supply of pumpkins is fixed and the demand is relatively inelastic, so we expect the price to rise significantly.

• The price of pumpkins goes down after Halloween.

• This misconception can now be addressed firmly: no.
• Consumers like lower prices, but that doesn't mean sellers will charge the highest price possible.
• Consumer demand is elastic at high prices.
• A seller who charges too much will not sell much.
• Firms learn that they need to lower their prices to attract more customers and maximize their revenue.

• Calculating the effects of personal, business, and policy decisions can be done if demand and supply are elastic.
• You get a very powerful tool when you combine the elasticity concept with the supply and demand model.
• In the next chapters, we use elasticity to make our models more realistic.

• Your knowledge of price elasticity can help you negotiate a better deal when buying a car.

• If the number of available substitute and the time you have to make a decision are both indicators, the salesperson will give you a better deal.

• Let's start with your budget.

• Don't tell the salesperson when you want to move inventory because they have one in mind.
• August is a good month to purchase because you are willing to spend.
• You want to keep the price elastic.
• When the dealer is trying to move inventory is too expensive, the salesperson suggests that you look at a different model.

• If the salesper sales promotions and sales bonuses are tied to the son asking if you have a particular monthly payment to sell at that time, the salesperson will be more eager to sell at that time.

• Don't negotiate on the sticker price, which is the price you see in the window, because it includes a lot of money.
• You want the salesperson to know that the price you pay is important to you.

• Make it clear that you are visiting other dealers.
• reinforce that you have many alternatives.
• Don't say you want a Honda to the salesperson.
• You can also visit the Ford showrooms.
• Take what you've seen on one lot and compare it to what you've seen on another.
• Each salesperson should tell you that your demand is elastic and that getting your business will require the dealership to offer you a better price.

• It's important to take your time to make a decision.

• The first time you walk onto a lot, never buy a car.
• If you want a car immediately, you are saying that your demand iselastic.
• The staff will not give you their best offer if the dealership thinks you have no flexibility.

• The elasticity of demand is a measure of responsiveness to a change in price.

• If the item accounts for a large share of the consumer's budget, if the market is more narrowly defined, or if the consumer has plenty of time to make a decision, demand will generally be more elastic.

• When there is no time for consumers to adjust their behavior, the immedi ate run, the short run, and the long run are what economists call these periods.

• The price elasticity of demand is calculated by dividing the percentage change in the quantity demanded by the percentage change in the price.
• If the price elasticity is zero, demand is said to be perfectly inelastic.
• Demand is inelastic when the price elasticity is between 0 and 1.
• Demand is elastic if the price elasticity is less than 1.
• The item has unitary elasticity when the price elasticity is exactly -1, for example.

• Income elasticity of demand is a measure of how income affects spending.
• Goods with a positive income elasticity.
• Goods with a negative income elasticity.

• The cross price elasticity of demand is a measure of responsiveness to change in the price of a related good.
• Positive values mean that the two goods are not replacements, while negative values mean that the two goods are not compatible.
• The two goods are not related to each other if the cross price elasticity is zero.

• The elasticity of supply is a measure of responsiveness to price changes.
• If producers have enough time to adjust production, supply will be more elastic.

• The price elasticity of supply is calculated by dividing the percentage change in the quantity supplied by the percentage change in the price.
• It is perfectly inelastic.
• Demand is inelastic when the price elasticity of supply is between 0 and 1.
• Supply is elastic if the price elasticity is greater than 1.

• The magnitude of the price change is determined by the interplay between the price elasticity of demand and the price elasticity of supply.

• Define the price elasticity of demand.

• An example of a good that has elastic supply is given.

• An example of a normal good can be given.
• Give a good that is inelastic.
• An example of a good.

What is the income elasticity of this relationship?

• Explain why slope is different from elasticity.

• Define the elasticity of demand.

• Define the elasticity of supply.

• You can use elasticity to explain your answer.

• It can sell relatively elastic, relatively inelastic, or per 50 T- shirts per week if it is marked as perfectly elastic by the bookstore.
• The price is elastic.

• The largest shopping day of the year is Black Friday, when peting shops charge 10 cents per copy.

• A private university notices that in- state and enue of $8,000 a month when it charges $10 out- of- state students seem to respond different per person and total revenue when tuition changes.

• The company makes 200,000 phones at a price of $150.

• A worker at a restaurant eats once a week.

• Every show follows coupon users throughout the week.
• Determine the income elasticity of the week as they assemble coupons and scout demand for eating at a restaurant and stores to see which have the best deals.

Do extreme couponers have Hollister?

• A hotel might raise the price of its bottled fees in order to make more money.

• To answer this question, we need to consider the elasticity of demand.

• The income elasticity of demand for food is related to the color of the shirt.
• T- shirt restaurant is positive for normal goods.
• Customers who buy other colors can avoid eating at a restaurant.

• Your intuition should be confirmed by this result.

• The government won't sell many gray T- shirts because the worker will get a 25% raise.

• Plugging into the formula every other week.

• D is plugged into the denominator.

• The frozen lasagna is not positive.

• Your intuition should be confirmed by this result.