# Introduction to elasticity

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## That will be how much?

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

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

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

## Introduction to elasticity

In this chapter, you will learn about:

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

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

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

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

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

what is nationalisation
it is a process of converting private assets into public assets by undertaking the control of government or state authority
ru
anything which is widely acceptable as a medium of exchange
money ,currency
ru
Hello plz,what is the full mean of tertiary?
tertiary also called philoshper
Waseem
tertiary means third..for example primary sector ,secondary and tertiary sector... means three number..
ru
ru 9ice tnk
al
ru
tnz
al
what is money
Tettey
what is a bank
Walters
a financial institution which holds money for its clients ,which collect deposit and lend money at interest and trades generally in money...
Shabana
what is bankers draft ?kindly explain with example .
Shabana
money "anything which is widely acceptable as a medium of exchange"
Shabana
yes u ryt #shabana
Dar
difference between cost and price
Dar
Shallow definition
cost"the value of input that is the amount of money which is used to produce a good or service . price"an amount of money which has to b paid to buy something.
Shabana
Tertiary is an adjective(pre position) for stages or levels and refers to "top, final, full term ." ; Advanced.
Anderson
bank draft is a type of cheque which a person buy for to pay someone who is not willing to accept a personal cheque .
ru
what is occupational structure
occupational structure refers to the distribution of occupation on the basis of educational ,socoial ,income level in a society or economy
ru
what is deficit
deficit = expenses > revenue
Waseem
yeah expenses over revenue results in deficit
Paulina
insufficiency
Anderson
What is What is Equilibrium
from business point of view it is that point where business revanu are equal to its expenses.
ru
in economy where demand is equal to supply is called equalibrium
ru
Equilibrium in economics is where quantity demanded is equal to quantity supplied
Collins
what are the objectives of devaluation
Oyedun
how the government solve the problem of scarcity
how government solve the problem of scarcity
SUNDAY
by deciding the output limit for every industry and providing resources to these industries according to output limit .the problem can be solved
ru
and by controlling the activity of production like as a mixed economy this problem can be solved
ru
by proper planning to cater the needs of people, demand & supply process may prove helpful. and by imposing heavy import duty on the product to shift the demand towards available alternative sources.
Abida
changing the methods of production, and tax system
Khushal
In problems of scarcity government should adopt a plan or state budget, form a long term policy , deal with corruption , mobilise resources ,systems and monitor.
Anderson
by doing various plans or scheme and providing various kind of free or in less price to the needy people
Plx anyone explain bankers draft by giving example.
Shabana
what is price elasticity of demand?
price elasticity of demand is the percentage in quantity demanded of a good or service to the percentage change in its price.
Cobbina
Price elasticity of demand is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price when nothing but the price changes.
TOHEEB
Price elasticity of Demand is a prepotionat change in the demand due to change in price of the goods and service
Dawal
what is monopoly and monopolistic?
KPAAKPA
Price elasticity of demand is the economy measure to show the responsiveness and change in price due to change in quantity.
Lomayani
what is economics
one simple reason to build format in level great leverage for better control knowing grown level greater with word trade..
Larod
Any one who can assit me with Multiplier
Wendy
Yeah sure
Aqrar
You mean Multiplier effect!5
Aqrar
ECONOMICS IS THE STUDY OF ECONOMIC ISSUES OR (ECONOMIC PROBLEMS)ARUSING OUT OF THE FACT THAT RESOURCES ARE SCARCE IN RELATION TO OUR NEEDS,DESIRES OR WE CAN SAY THAT RESOURCES ARE LIMITED OR WANTS ARE UN LIMITED HOW CAN WE UTILIZE LIMITED RESOURCES FOR SETESFY OUR WANTS
Nazneen
is called economics
Nazneen
is call economist
KPAAKPA
then
Nazneen
Economics is all about management of scarce resources. In other words its is about efficience.
Aqrar
Nazneen lets discuss some advance concepts and models
Aqrar
I.can see you have good concepts of Econ
Aqrar
what is multiplier
Wendy
@Wendy A phenomenon whereby a given change in a particular input, such as government spending, causes a larger change in an output, such as gross domestic product.
Aqrar
economic is social science that deal with the human behavior as a difference b/ween earth and scale.
jacob
Economics is a science that studies human behaviour in relation to ends and scarce means which have alternative uses
Collins
economics is a social science that deal with human behavior in aspect of end and scarce and the alternative use
Chibuzor
pls I want to known the difference between inflation and deflation, what is there difference ?
jacob
economics is the study of how man used scarce recourse to satisfy human wants
abdullahi
inflation is the increase in the general price level while deflation is decrease in general price level.
Azhar
evening,dear friends. I'm very glad to be one of you so will you please give me full imformaton about economics epically the time table of the first year of the univerysity
abdullahi
hi iam from india
Naa
economic is the study of human behavior, want by professor Robert say is all about choice and want
KPAAKPA
what is SCARCITY?
KPAAKPA
Scarcity is the limitation of resources within the economy
karl
means that human wants for goods, services and resources exceed what is available
KPAAKPA
Scarcity is inefficient resources to satisfy human want.
Pat
inflation can define as general rise in the price due to too much money in circulation, while is the decrease of the price of goods due to low money in circulation.
Musa
what is the law of dimension return?
jacob
Jacob it's diminishing return
The
The study of house hold management and money measurements
Wardan
hi
Augustine
what is mearnt of economies of scale..pls asist me
Augustine
hii
Vimarsh
when larger amount of output is produced , per unit input costs tend to fall , heading towards economiea of scale ..by acale we mean scale of production here
Vimarsh
economies# scale#
Vimarsh
alright thank u..what are its advantages
Augustine
the cost of production is low and more efficient
Vimarsh
What is demand?
Bright
demand is the various goods and services consumers are willing and able to purchase at a particular price
Paulina
What is inflation
Bright
Economics is a social science focusing on the economy and its agents in production,distribution,buying and selling involving resources such as raw materials and labour at micro ie individual or family and macro ie aggregate or total and state levels . There are several forms or brands or approache
Anderson
scarcity means non availability things or resources which satisfy humans
demanding the various goods and services which satisfy humans needs
when we calculate shortage and surplus why do we subtract quantity demanded from quantity supplied
to determine surplus
Concepcion
true using of graphs
jacob
because we try to avoid negative answers
Eric
what is price ceiling
price ceiling is a government-imposed price control, or limit, on how high a price is charged for a product. Governments use price ceilings to protect consumers from conditions that could make commodities prohibitively expensive.
Rina
price effect= Income Effect+ Substitution Effect
Well described Rina
Aqrar
why average revenue is equal to price in monopoly market?
Because One person get the monopole on demand market without any concurrence
Christian
hlw
Luman
hlw
Sheikh
Black money comes from black mark
why perfect competition is also known as price taker?
In perfect competition a firm is a price taker rather to be a price maker because the products it produces are homogeneous so no one will pay extra. price taker means that firms can not set the price it want. If it charged high price then market price its goods will remain unsold.
Azhar
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