Ch 20 Econ Notes
chapter twenty
Demand and Supply:
Elasticities and GOVERNMENT-SET PRICES
CHAPTER OVERVIEW
This chapter is the first of the chapters in Part Five, “Microeconomics of Product Markets.” Students will benefit by reviewing Chapter 3’s demand and supply analysis prior to reading this chapter. Depending upon the course outline used in the micro principles course, this chapter could be taught after Chapter 3.
Both the elasticity coefficient and the total receipts test for measuring price elasticity of demand are presented in the chapter. The text attempts to sharpen students’ ability to estimate price elasticity by discussing its major determinants. The chapter reviews a number of applications and presents empirical estimates for a variety of products. Cross and income elasticities of demand and price elasticity of supply are also addressed.
Finally, price ceilings and price floors are discussed as well as the economic consequences on the market of government-set prices.
WHAT’S NEW
The chapter title has been expanded to include the second topic – government-set prices. Throughout the discussion on price elasticity, examples (popcorn, movie tickets, etc.) are used instead of product X and product Y. An application section has been added to the cross elasticity discussion. The section on government-set prices has been rewritten with more current examples being included in the price ceiling discussion. Finally, the example of rock concert promoters using below-equilibrium prices has been moved to an Internet problem.
The Last Word has been changed. One of the Web-Based Questions has been revised.
INSTRUCTIONAL OBJECTIVES
After completing this chapter, students should be able to:
1. Define demand and supply and state the laws of demand and supply (review from Chapter 3).
2. Determine equilibrium price and quantity from supply and demand graphs and schedules (from Chapter 3).
3. Define price elasticity of demand and compute the
Demand and Supply:
Elasticities and GOVERNMENT-SET PRICES
CHAPTER OVERVIEW
This chapter is the first of the chapters in Part Five, “Microeconomics of Product Markets.” Students will benefit by reviewing Chapter 3’s demand and supply analysis prior to reading this chapter. Depending upon the course outline used in the micro principles course, this chapter could be taught after Chapter 3.
Both the elasticity coefficient and the total receipts test for measuring price elasticity of demand are presented in the chapter. The text attempts to sharpen students’ ability to estimate price elasticity by discussing its major determinants. The chapter reviews a number of applications and presents empirical estimates for a variety of products. Cross and income elasticities of demand and price elasticity of supply are also addressed.
Finally, price ceilings and price floors are discussed as well as the economic consequences on the market of government-set prices.
WHAT’S NEW
The chapter title has been expanded to include the second topic – government-set prices. Throughout the discussion on price elasticity, examples (popcorn, movie tickets, etc.) are used instead of product X and product Y. An application section has been added to the cross elasticity discussion. The section on government-set prices has been rewritten with more current examples being included in the price ceiling discussion. Finally, the example of rock concert promoters using below-equilibrium prices has been moved to an Internet problem.
The Last Word has been changed. One of the Web-Based Questions has been revised.
INSTRUCTIONAL OBJECTIVES
After completing this chapter, students should be able to:
1. Define demand and supply and state the laws of demand and supply (review from Chapter 3).
2. Determine equilibrium price and quantity from supply and demand graphs and schedules (from Chapter 3).
3. Define price elasticity of demand and compute the