{"id":97,"date":"2016-08-18T09:17:04","date_gmt":"2016-08-18T16:17:04","guid":{"rendered":"http:\/\/pages.palomar.edu\/jesteban\/?page_id=97"},"modified":"2016-12-06T07:16:19","modified_gmt":"2016-12-06T15:16:19","slug":"introduction-to-elasticity","status":"publish","type":"page","link":"https:\/\/pages.palomar.edu\/jesteban\/home\/introduction-to-elasticity\/","title":{"rendered":"Introduction to Elasticity"},"content":{"rendered":"<p>Money, money!\u00a0 $$.\u00a0 Elasticity of demand is a tool that helps firms make more money.\u00a0 It is a number that aids sellers of a product or service to increase the revenue (defined as price times quantity sold) of the firm.<\/p>\n<p>Imagine you had a business and that by changing the prices of your products you end with more money!\u00a0 Elasticity is defined as the responsiveness in quantity demanded in percent given a percent change in price.<\/p>\n<p><a href=\"https:\/\/pages.palomar.edu\/jesteban\/wp-content\/uploads\/sites\/52\/2016\/08\/Sale.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-114\" src=\"https:\/\/pages.palomar.edu\/jesteban\/wp-content\/uploads\/sites\/52\/2016\/08\/Sale.jpg\" alt=\"Sale\" width=\"225\" height=\"224\" srcset=\"https:\/\/pages.palomar.edu\/jesteban\/wp-content\/uploads\/sites\/52\/2016\/08\/Sale.jpg 225w, https:\/\/pages.palomar.edu\/jesteban\/wp-content\/uploads\/sites\/52\/2016\/08\/Sale-150x150.jpg 150w\" sizes=\"auto, (max-width: 225px) 100vw, 225px\" \/><\/a><a href=\"https:\/\/pages.palomar.edu\/jesteban\/wp-content\/uploads\/sites\/52\/2016\/08\/Demand-1.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-medium wp-image-153\" src=\"https:\/\/pages.palomar.edu\/jesteban\/wp-content\/uploads\/sites\/52\/2016\/08\/Demand-1-300x263.jpg\" alt=\"Demand\" width=\"300\" height=\"263\" srcset=\"https:\/\/pages.palomar.edu\/jesteban\/wp-content\/uploads\/sites\/52\/2016\/08\/Demand-1-300x263.jpg 300w, https:\/\/pages.palomar.edu\/jesteban\/wp-content\/uploads\/sites\/52\/2016\/08\/Demand-1-342x300.jpg 342w, https:\/\/pages.palomar.edu\/jesteban\/wp-content\/uploads\/sites\/52\/2016\/08\/Demand-1.jpg 660w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/a><\/p>\n<p><iframe loading=\"lazy\" title=\"Copy of IntroElasticity 1\" width=\"584\" height=\"329\" src=\"https:\/\/www.youtube.com\/embed\/XEozowe5qD8?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe><\/p>\n<p>Imagine the scenario above &#8211;\u00a0 50% sale at your local store.\u00a0 Check the table below:<\/p>\n\n<table id=\"tablepress-6\" class=\"tablepress tablepress-id-6\">\n<thead>\n<tr class=\"row-1\">\n\t<td class=\"column-1\"><\/td><th class=\"column-2\">Demand for blouses<\/th><th class=\"column-3\">Demand for blouses<br \/>\nwith 50% sale<\/th>\n<\/tr>\n<\/thead>\n<tbody class=\"row-striping row-hover\">\n<tr class=\"row-2\">\n\t<td class=\"column-1\">Quantity<\/td><td class=\"column-2\">2  blouses<\/td><td class=\"column-3\">6 blouses<\/td>\n<\/tr>\n<tr class=\"row-3\">\n\t<td class=\"column-1\">Price<\/td><td class=\"column-2\">40 dollars<\/td><td class=\"column-3\">20 dollars<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<!-- #tablepress-6 from cache -->\n<p>The formula for elasticity is:<\/p>\n<p><a href=\"https:\/\/pages.palomar.edu\/jesteban\/wp-content\/uploads\/sites\/52\/2016\/08\/elasticity-demand-percentag-1.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-medium wp-image-168\" src=\"https:\/\/pages.palomar.edu\/jesteban\/wp-content\/uploads\/sites\/52\/2016\/08\/elasticity-demand-percentag-1-300x185.jpg\" alt=\"elasticity-demand-percentag\" width=\"300\" height=\"185\" srcset=\"https:\/\/pages.palomar.edu\/jesteban\/wp-content\/uploads\/sites\/52\/2016\/08\/elasticity-demand-percentag-1-300x185.jpg 300w, https:\/\/pages.palomar.edu\/jesteban\/wp-content\/uploads\/sites\/52\/2016\/08\/elasticity-demand-percentag-1.jpg 332w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/a><\/p>\n<p>In the example above Q1 = 2 blouses and P1 = $40, Q2 = 6 blouses and P2 = $20 (50% off).\u00a0 The video below will show how to calculate the value of elasticity:<\/p>\n<p><iframe loading=\"lazy\" title=\"Calculate Elasticity2\" width=\"584\" height=\"329\" src=\"https:\/\/www.youtube.com\/embed\/dPTCpkmnIII?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe><\/p>\n<p>The values of the elasticity formula will help the decision maker determine how to change prices in order to increase total revenue.\u00a0 In the previous example:<\/p>\n\n<table id=\"tablepress-7\" class=\"tablepress tablepress-id-7\">\n<thead>\n<tr class=\"row-1\">\n\t<th class=\"column-1\">PRICE<\/th><th class=\"column-2\">QUANTITY<\/th><th class=\"column-3\">TOTAL REVENUE<\/th><th class=\"column-4\">VALUE OF ELASTICITY<\/th>\n<\/tr>\n<\/thead>\n<tbody class=\"row-striping row-hover\">\n<tr class=\"row-2\">\n\t<td class=\"column-1\">$40<\/td><td class=\"column-2\">2<\/td><td class=\"column-3\">$80<\/td><td class=\"column-4\">1.45<\/td>\n<\/tr>\n<tr class=\"row-3\">\n\t<td class=\"column-1\">$20<\/td><td class=\"column-2\">6<\/td><td class=\"column-3\">$120<\/td><td class=\"column-4\"><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<!-- #tablepress-7 from cache -->\n<p>The value of elasticity in this example, 1.45, tells us that this portion of this demand curve is elastic so that if we lower the price to $20 and we sell 6 blouses the total revenue is $120 as opposed to the original price of $40 and 2 blouses and total revenue of $80.\u00a0 Economist label this a relatively elastic demand when the value of the formula &#8211; 1.45\u00a0 in this example &#8211; is greater than 1.\u00a0 Lower price and increase total revenue $$\u00a0 We like more money!<\/p>\n<p>However sometimes when prices go down &#8211; a firm makes less money \ud83d\ude41\u00a0 Let&#8217;s follow an example:<\/p>\n\n<table id=\"tablepress-14\" class=\"tablepress tablepress-id-14\">\n<thead>\n<tr class=\"row-1\">\n\t<th class=\"column-1\">PRICE<\/th><th class=\"column-2\">QUANTITY<\/th><th class=\"column-3\">TOTAL REVENUE<\/th><th class=\"column-4\">VALUE OF ELASTICITY<\/th>\n<\/tr>\n<\/thead>\n<tbody class=\"row-striping row-hover\">\n<tr class=\"row-2\">\n\t<td class=\"column-1\">$2.85<\/td><td class=\"column-2\">15<\/td><td class=\"column-3\">$42.75<\/td><td class=\"column-4\">0.89<\/td>\n<\/tr>\n<tr class=\"row-3\">\n\t<td class=\"column-1\">$2.65<\/td><td class=\"column-2\">16<\/td><td class=\"column-3\">$42.40<\/td><td class=\"column-4\"><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<!-- #tablepress-14 from cache -->\n<p>Using gasoline as an example &#8211; we see that as the price drops the total revenue decreases &#8211; what is going on? \u00a0 Economist label this a relatively inelastic demand when the value of the formula &#8211; 0.89\u00a0 in this example &#8211; is less\u00a0 than 1. This is what elasticity is designed for &#8211; using the value of elasticity a firm can determine whether to raise\/lower prices to increase total revenue.\u00a0 This decision is made based upon the value of the elasticity formula &#8211; let&#8217;s review our examples from above:<\/p>\n<p><a href=\"https:\/\/pages.palomar.edu\/jesteban\/wp-content\/uploads\/sites\/52\/2016\/08\/ElasticitySummary.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-258\" src=\"https:\/\/pages.palomar.edu\/jesteban\/wp-content\/uploads\/sites\/52\/2016\/08\/ElasticitySummary.jpg\" alt=\"elasticitysummary\" width=\"1280\" height=\"720\" srcset=\"https:\/\/pages.palomar.edu\/jesteban\/wp-content\/uploads\/sites\/52\/2016\/08\/ElasticitySummary.jpg 1280w, https:\/\/pages.palomar.edu\/jesteban\/wp-content\/uploads\/sites\/52\/2016\/08\/ElasticitySummary-300x169.jpg 300w, https:\/\/pages.palomar.edu\/jesteban\/wp-content\/uploads\/sites\/52\/2016\/08\/ElasticitySummary-768x432.jpg 768w, https:\/\/pages.palomar.edu\/jesteban\/wp-content\/uploads\/sites\/52\/2016\/08\/ElasticitySummary-1024x576.jpg 1024w, https:\/\/pages.palomar.edu\/jesteban\/wp-content\/uploads\/sites\/52\/2016\/08\/ElasticitySummary-500x281.jpg 500w\" sizes=\"auto, (max-width: 1280px) 100vw, 1280px\" \/><\/a>There is one more possibility &#8211; that the firm changes prices and revenue remains the same!\u00a0 Economists called this the unitary value (= 1) of elasticity &#8211; however we will not expand on this case since it is very rare.<\/p>\n<p>The short clip below will summarize how the value of elasticity helps a firm increase total revenue:<\/p>\n<p><iframe loading=\"lazy\" title=\"Elasticity Animation\" width=\"584\" height=\"329\" src=\"https:\/\/www.youtube.com\/embed\/9lHoTH92BxI?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe><\/p>\n<h2>Check your knowledge of the Elasticity formula &#8211; the table below will let you input data and will Calculate the value of elasticity of demand \ud83d\ude42<\/h2>\n<style>@media (max-width:480px){#cp_calculatedfieldsf_pform_1{min-height:432px;}}@media (max-width:768px){#cp_calculatedfieldsf_pform_1{min-height:407px;}}@media (max-width:1024px){#cp_calculatedfieldsf_pform_1{min-height:329px;}}@media (min-width:1024px){#cp_calculatedfieldsf_pform_1{min-height:265px;}}<\/style><form name=\"cp_calculatedfieldsf_pform_1\" id=\"cp_calculatedfieldsf_pform_1\" action=\"https:\/\/pages.palomar.edu\/jesteban\/home\/introduction-to-elasticity\/\" method=\"post\" enctype=\"multipart\/form-data\" onsubmit=\"return fbuilderjQuery.fbuilder.doValidate(this);\" class=\"cff-form no-prefetch  cff-form-6\"  data-nonce=\"3731bd8925\">\n<input type=\"hidden\" 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class=\"meta-nav\">&rarr;<\/span><\/a><\/p>\n","protected":false},"author":115,"featured_media":0,"parent":13,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"footnotes":""},"class_list":["post-97","page","type-page","status-publish","hentry"],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/pages.palomar.edu\/jesteban\/wp-json\/wp\/v2\/pages\/97","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/pages.palomar.edu\/jesteban\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/pages.palomar.edu\/jesteban\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/pages.palomar.edu\/jesteban\/wp-json\/wp\/v2\/users\/115"}],"replies":[{"embeddable":true,"href":"https:\/\/pages.palomar.edu\/jesteban\/wp-json\/wp\/v2\/comments?post=97"}],"version-history":[{"count":36,"href":"https:\/\/pages.palomar.edu\/jesteban\/wp-json\/wp\/v2\/pages\/97\/revisions"}],"predecessor-version":[{"id":599,"href":"https:\/\/pages.palomar.edu\/jesteban\/wp-json\/wp\/v2\/pages\/97\/revisions\/599"}],"up":[{"embeddable":true,"href":"https:\/\/pages.palomar.edu\/jesteban\/wp-json\/wp\/v2\/pages\/13"}],"wp:attachment":[{"href":"https:\/\/pages.palomar.edu\/jesteban\/wp-json\/wp\/v2\/media?parent=97"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}