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Contemporary Economics: An Applications Approach By Robert J. Carbaugh 3rd Edition

Contemporary Economics: An Applications Approach By Robert J. Carbaugh 3rd Edition. Chapter 3: Demand and Supply Applications. Elasticity of Demand. Price elasticity of demand. Estimated price elasticities of demand. elasticity coefficient

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Contemporary Economics: An Applications Approach By Robert J. Carbaugh 3rd Edition

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  1. Contemporary Economics:An Applications ApproachBy Robert J. Carbaugh3rd Edition Chapter 3: Demand and Supply Applications

  2. Elasticity of Demand Price elasticity of demand Estimated price elasticities of demand elasticity coefficient item short run long run Airline travel 0.1 2.4 Medical care 0.3 0.9 Auto tires 0.9 1.2 Stationery 0.5 0.6 Gasoline 0.2 0.7 Housing 0.3 1.9 Automobiles 1.9 2.2 Movies 0.9 3.7 Jewelry & watches 0.4 0.7 Radio & TV repair 0.5 3.8 Natural gas 1.4 2.1 Carbaugh, Chap. 3

  3. 600 600 550 550 500 500 450 450 0 100 200 300 400 500 600 0 100 200 300 400 500 600 Quantity of tickets Quantity of tickets Elasticity of Demand Elasticity and airline ticket tax All the tax is shifted to buyers Some of the tax shifted to buyers S1 (with tax) D0 (inelastic) S1 (with tax) Price ($) Price ($) B S0 (without tax) S0 (without tax) C 520 A A D1 (elastic) Carbaugh, Chap. 3

  4. 7,000 7,000 6,000 6,000 5,000 5,000 4,000 4,000 3,000 3,000 4000 5000 6000 4000 5000 6000 Attendance Attendance Elasticity of Demand Elasticity and tuition revenue Inelastic demand: rising total revenue Elastic demand: falling total revenue D0 Tuition revenue = $28 million Tuition $ Tuition $ Tuition revenue = $23 million D1 D B C A Tuition revenue = $24 million Tuition revenue = $24 million 5600 4600 Carbaugh, Chap. 3

  5. Elasticity of Supply Price elasticity of supply Estimated price elasticities of supply Price elasticity Vegetable short run long run Lima beans 0.10 1.70 Cabbage 0.36 1.20 Carrots 0.14 1.00 Cucumbers 0.29 2.20 Onions 0.34 1.00 Green peas 0.31 4.40 Green peppers 0.07 0.26 Tomatoes 0.16 0.90 Cauliflower 0.14 1.10 Celery 0.14 0.95 Spinach 0.20 4.70 Carbaugh, Chap. 3

  6. 450 400 350 300 250 200 150 100 50 0 0 10 20 30 Quantity of health services per mo. Elasticity applied Increasing price of health care S0 Price ($) S1 B A D1 D0 Carbaugh, Chap. 3

  7. 1,500 1,200 900 600 300 0 0 500 1000 Quantity of apartments per mo. Price Ceilings and Floors Rent ceilings and housing shortages Rent ($) S0 C Shortage A B Rent ceiling D1 D0 Carbaugh, Chap. 3

  8. 14 12 10 8 6 4 0 4 8 12 16 20 Mill. dollars of loans per week Price Ceilings and Floors Usury ceilings and credit shortages S0 Interest rate C Shortage A B Interest ceiling D1 D0 Carbaugh, Chap. 3

  9. $1.50 $1.25 $1.00 $0.75 $0.50 $0.25 $0.00 0 20 40 60 80 100 120 Quantity of gasoline (mill. gallons) Price Ceilings and Floors Market for gasoline with a price ceiling S1 Price S0 C A B Price ceiling Shortage D0 Carbaugh, Chap. 3

  10. $8 $7 $6 $5 $4 $3 $2 $1 $0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Quantity of wheat (mill. bushels) Price Ceilings and Floors Effect of price supports for wheat Price S0 Surplus B C Price floor A D0 Carbaugh, Chap. 3

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