Download Price ($ per tonnes)

Perfectly Elastic and Perfectly Inelastic
Demand (a)
Perfectly elastic demand means constant
price and a horizontal demand curve
Perfectly inelastic demand means constant
quantity demanded and a vertical demand
curve
Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.
Perfectly Elastic and Perfectly Inelastic
Demand (b) Figure 3.2 Page 57
Perfectly Inelastic
Demand Curve
for Insulin
D3
1.60
0
0
Quantity Demanded
(tonnes)
In a perfectly competitive market
D4
Price ($ per tonnes)
Price ($ per tonnes)
Perfectly Elastic
Demand Curve
for Soybeans
1000
Quantity Demanded
(litres)
In a monopoly
Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.
Perfectly Elastic and Perfectly
Inelastic Demand (b)
Perfectly Elastic Example:
A soft drink from two campus machines
located side by side. If the two machines offer
the same soft drink for the same price, some
people might buy from one machine and some
from the other. However, if one machine's price
is higher than the other, by even a small
amount, the quantity demanded will drop to
zero. The demand for a good that has a perfect
substitute is perfectly elastic.
Total Revenue and the Price Elasticity
of Demand
A price change causes total revenue to
change in the opposite direction when
demand is elastic
A price change causes total revenue to
change in the same direction when
demand is inelastic
A price change does not affect total
revenue when demand is unit-elastic
Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.
Revenue Changes with Elastic Demand
Figure 3.3 Page 59
Price ($ to rent a video)
Demand Curve for Videos
5
4
A
3
2
D
B
C
1
0
500
1000
1500
Quantity Demanded (videos rented each day)
Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.
Total Revenue and the Price Elasticity of
Demand (c) Figure 3.5 Page 60
Demand Elasticity and Changes in Total Revenue
Price
Change
Change in
Total Revenue
Elastic Demand
up
down
down
up
Inelastic Demand
up
down
up
down
Unit-Elastic Demand
up
down
unchanged
unchanged
Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.
Elasticity and a Linear Demand
Curve (b) Figure 3.6 Page 62
Market Demand and Supply Curves
for Milk
Market Demand Schedules
for Sodas
5
Price
($ per
soda)
5
4
3
2
1
0
Quantity
Demanded
Price
Elasticity
of Demand
(millions of sodas)
(ed)
0
1
2
3
4
5
9.00
2.33
1.00
0.43
0.11
Price ($ per soda)
ed > 1
4
3
ed = 1
2
ed < 1
1
0
1
2
3
4
Quantity Demanded
(millions of sodas)
Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.
5