【正文】 2020 Pearson Education, Inc. Chapter 1 108 Predicting the Effects of Changing Market Conditions ?Supply and demand analysis can be used to predict the effects of changing market conditions ?Linear demand and supply must be fit to market data ? Given equilibrium price and quantity along with elasticities of supply and demand, we can calculate the curves that fit the information ? We can then calculate changes in the market 169。2020 Pearson Education, Inc. Chapter 1 106 S’ D S P0 Q0 P2 Q2 IntermediateRun 1) Supply and demand are more elastic 2) Price falls back to P2. An Application Coffee Quantity Price 169。2020 Pearson Education, Inc. Chapter 1 104 ShortRun vs. LongRun Elasticity – An Application ?Demand and supply are more elastic in the long run ?In the short run, supply is pletely inelastic ?Weather may destroy part of the fixed supply, decreasing supply ?Demand is relatively inelastic as well ?Price increases significantly 169。2020 Pearson Education, Inc. Chapter 1 102 ShortRun vs. LongRun Elasticity – An Application ?Why are coffee prices very volatile? ?Most of the world’s coffee is produced in Brazil ?Many changing weather conditions affect the crop of coffee, thereby affecting price ?Price following bad weather conditions is usually shortlived ?In long run, prices e back to original levels, all else equal 169。2020 Pearson Education, Inc. Chapter 1 100 SSR Quantity Secondary Copper Price ShortRun Versus LongRun Elasticity SLR Price increases provide an incentive to convert scrap copper into new supply. In the long run, this stock of scrap copper begins to fall. 169。2020 Pearson Education, Inc. Chapter 1 98 ShortRun Versus LongRun Elasticity ?Most goods and services: ?Longrun price elasticity of supply is greater than shortrun price elasticity of supply ?Other Goods (durables, recyclables): ?Longrun price elasticity of supply is less than shortrun price elasticity of supply 169。2020 Pearson Education, Inc. Chapter 1 96 Demand for Gasoline 169。2020 Pearson Education, Inc. Chapter 1 94 ShortRun Versus LongRun Elasticity ?Ine elasticity also varies with the amount of time consumers have to respond to an ine change ?For most goods and services, ine elasticity is larger in the long run ?When ine changes, it takes time to adjust spending 169。2020 Pearson Education, Inc. Chapter 1 92 ShortRun Versus LongRun Elasticity ?Demand and Durability ?For some durable goods, demand is more elastic in the short run ?If goods are durable, then when price increases, consumers choose to hold on to the good instead of replacing it ?But in long run, older durable goods will have to be replaced 169。2020 Pearson Education, Inc. Chapter 1 90 ShortRun Versus LongRun Elasticity ?Demand ?In general, demand is much more price elastic in the long run ? Consumers take time to adjust consumption habits ? Demand might be linked to another good that changes slowly ? More substitutes are usually available in the long run 169。2020 Pearson Education, Inc. Chapter 1 88 Elasticity: An Application QD = QS 2809 226P = 1439 + 267P P = $ per bushel Q = 2809 (226)() = 2181 million bushels Price of wheat fell in nominal terms. 169。2020 Pearson Education, Inc. Chapter 1 86 Elasticity: An Application ?Assume the price of wheat is $486,2))(266(550,3 ???DQ)266(486,2 ????DPQ169。2020 Pearson Education, Inc. Chapter 1 84 Elasticity: An Application QD = QS 1800 + 240P = 3550 – 266P 506P = 1750 P = $ per bushel Q = 1800 + (240)() = 2630 million bushels 169。2020 Pearson Education, Inc. Chapter 1 82 Elasticity: An Application ?During the 1980’s and 1990’s, the market for wheat went through changes that had great implications for American farmers and US agricultural policy ?Using the supply and demand curves for wheat, we can analyze what occurred in this market 169。2020 Pearson Education, Inc. Chapter 1 80 Price Elasticity of Supply ?Measures the sensitivity of quantity supplied given a change in price ?Measures the percentage change in quantity supplied resulting from a 1 percent change in price PQE SSP???%%169。2020 Pearson Education, Inc. Chapter 1 78 Other Demand Elasticities ?CrossPrice Elasticity of Demand ?Measures the percentage change in the quantity demanded of one good that results from a one percent change in the price of another good mbbmmmbbPQ PPPPEmb ??????169。2020 Pearson Education, Inc. Chapter 1 76 Completely Inelastic Demand Quantity Price Q* D EP = 0 169。2020 Pearson Education, Inc. Chapter 1 74 Price Elasticity of Demand ?The steeper the demand curve, the more inelastic the demand for the good bees ?The flatter the demand curve, the more elastic the the demand for the good bees ?Two extreme cases of demand curves ?Completely inelastic demand – vertical ?Infinitely elastic demand – horizontal 169。2020 Pearson Education, Inc. Chapter 1 72 Price Elasticity of Demand ?Given a linear demand curve ?Elasticity depends on slope and on the values of P and Q ?The top portion of demand curve is elastic ? Price is high and quantity small ?The bottom portion of demand curve is inelastic ? Price is low and quantity high 169。2020 Pearson Education, Inc. Chapter 1 70 Price Elasticity of Demand ?The primary determinant of price elasticity of demand is the availability of substitutes ?Many substitutes, demand is price elastic ? Can easily move to another good with price increases ?Few substitutes, demand is price inelastic 169。2020 Pearson Education, Inc. Chapter 1 68 Price Elasticity of Demand ?The percentage change in a variable is the absolute change in the variable divided by the original level of the varia