Download Carbaugh, Contemporary Econ 3e

Contemporary Economics:
An Applications Approach
By Robert J. Carbaugh
4th Edition
Chapter 3:
Demand and Supply
Applications
Copyright ©2006 by Thomson South-Western. All rights reserved.
Elasticity of Demand
Price elasticity of demand
Estimated price elasticities of demand
item
Percentage Change in
Quantity Demanded
E 
d Percentage Change in Price
Airline travel
Medical care
Auto tires
Gasoline
Housing
Automobiles
Movies
Natural gas
elasticity coefficient
short run
long run
0.1
0.3
0.9
0.2
0.3
1.9
0.9
1.4
2.4
0.9
1.2
0.7
1.9
2.2
3.7
2.1
Sources: From Robert Archibald and Robert Gillingham, “An Analysis of the
Short-Run Consumer Demand for Gasoline Using Household Survey Data,”
Review of Economics and Statistics, November 1980, pp. 622–628; and
Hendrik Houthakker and Lester Taylor, Consumer Demand in the United
States (Cambridge: Harvard University Press, 1970), pp. 56–149.
Carbaugh, Chap. 3
2
Elasticity of Demand
Elasticity and airline ticket tax
All tax is shifted to buyers
S1
(inelastic)
(with tax)
550
S1
Price ($)
Price ($)
D0
Some of the tax shifted to buyers
(with tax)
B
S0
A
500
(without
tax)
S0
C
520
A
500
(without
tax)
D1
(elastic)
0
0
0
300
Quantity of tickets
Carbaugh, Chap. 3
0
290
300
Quantity of tickets
3
Elasticity of Demand
Elasticity and tuition revenue
D0
Tuition revenue =
$28 million
Elastic demand: falling total revenue
Tuition $
Tuition $
Inelastic demand: rising total revenue
Tuition revenue =
$23 million
D1
B
5,000
5,000
A
4,000
C
4,000
Tuition revenue =
$24 million
Tuition revenue =
$24 million
0
0
5600 6000
Attendance
Carbaugh, Chap. 3
D
4600
6000
Attendance
4
Price Ceilings and Floors
Rent ceilings and housing shortages
Rent ($)
S0
C
Shortage
900
A
B
Rent ceiling
600
D1
D0
0
400
700
1000
Quantity of apartments per month
Carbaugh, Chap. 3
5
Price Ceilings and Floors
Effect of price supports for wheat
Price
Surplus
B
$5
C
S0
Price floor
A
$4
D0
$0
0
7
9
11
Quantity of wheat (millions of bushels)
Carbaugh, Chap. 3
6
Elasticity applied
Increasing cost of health care
S0
Price ($)
S1
B
250
A
200
D1
D0
0
10
20
30
Quantity of health services per month
Carbaugh, Chap. 3
7