【正文】 y of demand tells us the responsiveness of demand to changes in ine. Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. McGrawHill/Irwin 6 85 Ine Elasticity of Demand ?An increase in ine generally increases one’s consumption of almost all goods, although the increase may be greater for some goods than for others. Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. McGrawHill/Irwin 6 86 Ine Elasticity of Demand ?Normal goods are those whose consumption increases with an increase in ine. ?They have ine elasticities greater than zero. Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. McGrawHill/Irwin 6 87 Ine Elasticity of Demand ?Normal goods are divided into luxuries and necessities. Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. McGrawHill/Irwin 6 88 Ine Elasticity of Demand ?Luxuries are goods that have an ine elasticity greater than one. ?Their percentage increase in demand is greater than the percentage increase in ine. Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. McGrawHill/Irwin 6 89 Ine Elasticity of Demand ?Shoes are a necessity—a good that has an ine elasticity less than 1. ?The consumption of a necessity rises by a smaller proportion than the rise in ine. Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. McGrawHill/Irwin 6 90 Ine Elasticity of Demand ?Inferior goods are those whose consumption decreases when ine increases. ?Inferior goods have ine elasticities less than zero. ?Dried milk is an example of an inferior good. Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. McGrawHill/Irwin 6 91 Inco me el a stici tyPro d u ct Sh o rt R u n L o n g Ru nMo tio n pi cture s 0 .81 3 .41Fore ig n t ra ve l 0 .24 3 .09Tob a cco pro d u cts 0 .21 0 .86Furn itu re 2 .60 0 .53Je w e lr y an d wa tche s 1 .00 1 .64H a rd li q u o r — 2 .50Pri va te u n iv e rsi ty tui tio n — 1 .10Ine Elasticities of Selected Goods Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. McGrawHill/Irwin 6 92 CrossPrice Elasticity of Demand ?Crossprice elasticity of demand is defined as the percentage change in demand divided by the percentage change in the price of another good. good another ofprice in change Percentage dema nd in change Percentage=E PriceCross Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. McGrawHill/Irwin 6 93 CrossPrice Elasticity of Demand ?Crossprice elasticity of demand tells us the responsiveness of demand to changes in prices of other goods. Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. McGrawHill/Irwin 6 94 Complements and Substitutes ?Substitutes are goods that can be used in place of another. ?When the price of a good goes up, the demand for the substitute good also goes up. Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. McGrawHill/Irwin 6 95 Complements and Substitutes ?Complements are goods that are used in conjunction with other goods. ?A fall in the price of a good will increase the demand for its plement. ?The crossprice elasticity of plements is negative. Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. McGrawHill/Irwin 6 96 C om m od it iesC r oss Pri ceElastici tyBe ef in r esp on se to p r ic e cha ng e in p ork 0. 11Be ef in r esp on se to p r ic e cha ng e in ch ic ken 0. 02U .S . au to m ob il es in resp on se to p r ic e cha ng esin E urop ea n an d Asian a ut omob il es 0. 28Eu r op ea n au to m ob il es in resp on se to p r ic echa ng es in . a nd A si an a ut omob il es 0. 61Be er in r esp on se to ch an ge s in wine 0. 23H ard li qu or in r esp on se to p r ic e cha ng es inbeer 0 .1 1CrossPrice Elasticities Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. McGrawHill/Irwin 6 97 P0 D0 D1 P0 20 Quantity 26 Shift due to 20% rise in ine Some Examples ? ? =2026 =202026189。20)(26=E ?Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. McGrawHill/Irwin 6 98 Some Examples S0 P0 S1 P0 104 Quantity 108 Shift due to 33% rise in price of pork ? ? =33–– =33–108104189。108)(104=E ?Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. McGrawHill/Irwin 6 99 The Power of Supply and Demand Analysis ?A number of questions may be answered by bining supply and demand analysis with elasticity. Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. McGrawHill/Irwin 6 100 When Should a Supplier Raise Price? ?The supplier should raise his price when it faces an inelastic demand. ? Total revenue increases with a price increase because quantity drops proportionally less than price goes up. ? Since costs also fall, profit rise. Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. McGrawHill/Irwin 6 101 When Should a Supplier Raise Price? ?When you have an elastic demand, you should hesitate to increase price. Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. McGrawHill/Irwin 6 102 Elasticity and Shifting Supply and Demand ?Elasticity can tell us more exactly the effect of shifting supply and demand. Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. McGrawHill/Irwin 6 103 Elasticity and Shifting Supply and Demand ?The more elastic the demand, the greater the effect of a supply shift on quantity, and the smaller effect on price. Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. M