Chapter 5: Elasticity - Part 2

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[@rameezshariff8278]

Hello Dr Azevedo, Hope you are doing well. I have a doubt regarding the topic of elasticity within a demand curve, with the upper half being more elastic than the lower. I am unable to find material online regarding that clarification and was hoping that you could help me with that question along with an example. 22:30 Thank you very much for the content that you have put out. It has truly been of great help. 🙏🏼. Best wishes.

[@DrAzevedoEcon]

Here's an example. Consider the demand curve P = 10 - Q. This would obviously be a straight line with a vertical intercept of 10 and a slope of -1. We can calculate elasticity between a couple of point on the top end of the demand curve. For example, if you calculate the elasticity for the prices of P=9 and P=7, you will get PED=4. You can then compare that to the elasticity for a couple of points on the bottom end of the demand curve. If you calculate the elasticity for the price of P=3 and P=1, you will get PED=1/4. Demand is elastic on the top end and inelastic on the lower end. I hope that example helps!

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i want to say thank you for this video .i need asking some question for you Some people will pay a higher price for brand-name goods. For example, some people buy Rolls Royces and Rolex watches to impress others. Does knowingly paying higher prices for certain items just to be a “snob” violate the law of demand?

[@anangtruong250]

This video helps me a lot but there is one thing in the video that I believe it is not 100% true in every nation. Your example of the corn can be true in America because agriculture is not the most profitable industry in America but talking about developing nations such as Southeast Asean countries where agriculture still takes control of the economy, applying techonology do help increase the income of the farmers.Thank you!

[@DrAzevedoEcon]

You're correct! That example would be completely reversed if demand was elastic. Demand for different goods and services can be very different in markets around the world. Keep in mind that what matters when supply shifts is not whether the industry is large or small or whether it is very profitable or not profitable at all. The thing that matters in this example is how consumers respond to a change in the price. If demand is inelastic (as in my example), the increase in supply will drive revenue down, and if demand is elastic, the increase in supply will drive revenue up. What would have to be true for this example not to apply to a particular country is demand for corn would have to be elastic. In other words, when the price of corn falls, people would need to respond by purchasing a lot more corn. One of the things that determines the elasticity of demand is the share of the good in the consumer's budget, so it is certainly possible that if corn purchases were a relatively large share of consumer's budgets, they could respond a lot to a decrease in the price of corn. Of course, this applies to anything...not just corn.

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is there a way to get your questions and assignments to practice?

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[@temaalyanoglu1110]

@@DrAzevedoEcon Dear ,sir. Can Elasticity only be measured when there is an increase in price ? Or reduction is also possible?

[@DrAzevedoEcon]

@@temaalyanoglu1110 It can be calculated for a decrease in price as well as an increase. When price goes down, quantity demanded goes up, so the sign of the elasticity is still negative.

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[@pktyagi2kumar73]

I this case PED should be infinite delta P by delta Q.

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A very clear explanation. Thank you!