David K.H. Begg, Gianluigi Vernasca-Economics-McGraw Hill Higher Education (2011)

Recommendations

Info

4.2 Price, quantity demanded and total expenditure (a) Inelastic demand (b) Elastic demand D QI P1 "' 'i: a. S' QI "' 'i: a. P1 P2 s s Ql Quantity In each case, the supply curve fluctuates between SS and S'S'. In case (a), demand is inelastic, and supply shifts lead to large changes in equilibrium price but little change in equilibrium quantity. In case (b), demand is elastic, and the same supply shift now leads to large changes in equilibrium quantity but little change in equilibrium price. Figure 4.3 The effect of demand elasticity on equilibrium price and quantity fluctuations Case A Case B Case C QI "' 'i: a. PA ------------------- ( -) I QI "' PA ------------ 'i: a. (-) Pa ------------ (+) P a - - - - - - - - - - - - - - - - - - - - - - - - Quantity 0 QA Qa Quantity 0 QA Qa Quantity When the price is reduced from PA to P6, expenditure changes from OPAAQA to OP6BQ6• Spending rises when demand is elastic (case A), falls when demand is inelastic (case B), and is unchanQed when demand is unit elastic (case Cl. Figure 4.4 Elasticity of demand and the effect of price changes on expenditure 73
CHAPTER 4 Elasticities of demand and supply Case B examines the lower end of the demand curve, where demand is inelastic. Although the price cut raises the quantity demanded, the rise in quantity is insufficient to compensate for the lower price. The ( +) area is smaller than the (-) area. Total spending falls. If price cuts increase total spending at high prices where the demand elasticity is high and reduce total spending at low prices where the demand elasticity is low, at some intermediate price a fall in price will leave total spending unaltered. Case C shows this possibility. The higher quantity demanded exactly compensates for the lower price. If quantity demanded rises 1 per cent when the price falls 1 per cent, total spending is unchanged. Case C shows the point on the demand curve at which the price elasticity of demand is -1 (quantity change -1 per cent, price change -1 per cent). If demand is elastic, a demand elasticity more negative than 1, as in case A, a 1 per cent price cut leads to an increase in quantity by more than 1 per cent. Hence total spending rises. Conversely, when demand is inelastic, a demand elasticity lying between 0 and l, as in case B, a 1 per cent price cut leads to an increase in quantity by less than 1 per cent. Hence total spending falls. These results are summarized in Table 4.3. The price of the iPhone and the elasticity of demand The iPhone 8GB, an internet and multimedia smart phone created by Apple, was launched in the US market in June 2007. The launch price was $599. In early September of the same year Apple announced a reduction in the price of the iPhone 8GB of 33 per cent, from $599 to $399. Why such a big reduction in the price a mere two months after the launch? One possibility is that Apple overestimated its demand for the iPhone and not many customers were willing to buy at that price. In this case, a price cut may be justified. This possibility, however, seems implausible. Demand for iPhones was high; customers were queuing outside Apple stores for hours in order to buy one. Maybe the price cut was due to the fact that Apple discovered that the cost of making the iPhone was lower than expected. This possibility also seems quite implausible. According to the market research company iSupply, the cost of making the iPhone 8GB was $280.83 when the iPhone was launched. This was the cost when the price was $599 and also when the price was reduced. A more plausible explanation is related to the idea of the elasticity of demand. The iPhone can be viewed as a luxury good with few direct substitutes. This would imply that the price elasticity of demand for the iPhone should probably be low. In pricing the iPhone, Apple would like to set a price such that the elasticity of demand is close to -1. It turned out that this was not the case. Indeed, it seems that the demand for iPhone was more elastic than that. Various estimates found an elasticity of demand between -3 and -5 per cent. According to our analysis, if the initial price is on the highly elastic part of the demand curve, a reduction in the price increases total expenditure, that is, price multiplied by quantity. But total expenditure represents the total revenue received by the firm that is selling the good. So a decrease in price when demand is quite elastic will increase the revenues obtained by the firm. To have a rough idea of the elasticity of demand for the iPhone we can use the sales data from Apple. In the first three months after the iPhone was launched, Apple sold 270 000 iPhones and the price was mainly $599. In the fourth quarter of 2007 (from October to December), Apple sold 1 119 000 iPhones when the price was $399. Using the arc elasticity of demand equation with those data, the elasticity of demand is approximately -3.06 per cent. While this is a rough measure, it still gives us an idea of how elastic the demand for iPhones is. According to this rough measure, a decrease in the price by 1 per cent will increase quantity demanded (and so sold) by 3 per cent. Obviously the cut in the price made the customers who bought the iPhone at $599 quite unhappy. A $100 discount voucher to be spent in Apple stores was given to those customers to partially compensate them. Source: Compiled by the authors. 74
Page 1:
• David Begg, Gianluigi Vernasca,
Page 4 and 5:
Economics 10th Edition David Begg,
Page 7 and 8:
Brief Table of Contents Preface xii
Page 9 and 10:
5 Consumer choice and demand decisi
Page 11 and 12:
PART FOUR Macroeconomics l 5 Introd
Page 13 and 14:
PART FIVE The world economy 28 Inte
Page 15 and 16:
Changes to the tenth edition After
Page 17 and 18:
Guided tour In addition to illustra
Page 19 and 20:
Aiding Understanding Hy the end of
Page 21 and 22:
Rent ceiling in Sweden* More on pri
Page 23 and 24:
13 General vs partial equilibrium:
Page 25 and 26:
26 Growth and competition* Case Neo
Page 27 and 28:
Cl INSTRUCTORS ... Would you like y
Page 29 and 30:
Additional technology to enhance le
Page 31 and 32:
Custom Publishing Solutions • cre
Page 33 and 34:
Acknowledgements for the tenth edit
Page 35 and 36:
Finally, special thanks to the foll
Page 38:
---.. . - Introduction Economics is
Page 41 and 42:
CHAPTER 1 Economics and the economy
Page 43 and 44:
Page 45 and 46:
Page 47 and 48:
Page 49 and 50:
Page 51 and 52:
Page 53 and 54:
Page 55 and 56:
Page 57 and 58:
Page 59 and 60: Learning Outcomes By the end of thi
Page 61 and 62: CHAPTER 2 Tools of economic analysi
Page 81 and 82: CHAPTER 3 Demand, supply and the ma
Page 104 and 105: 4.1 The price responsiveness of dem
Page 112 and 113: 4.2 Price, quantity demanded and to
Page 114 and 115: 4.4 Short run and long run simultan
Page 116 and 117: 4.6 The effect of income on demand
Page 118 and 119: 4.6 The effect of income on demand
Page 120 and 121: 4.8 Elasticity of supply The elasti
Page 122 and 123: 4.9 Who really pays the tax? S' - G
Page 124 and 125: Summary What are the effects of the
Page 126 and 127: Review questions 5 Common fallacies
Page 130 and 131: 5.1 Demand by a single consumer is
Page 132 and 133: 5.1 Demand by a single consumer Ill
Page 134 and 135: 5.1 Demand by a single consumer QF
Page 136 and 137: 5.1 Demand by a single consumer whe
Page 138 and 139: 5.1 Demand by a single consumer How
Page 140 and 141: 5.2 Adjustment to income changes ou
Page 142 and 143: 5.3 Adjustment to price changes and
Page 144 and 145: 5.3 Adjustment to price changes Thi
Page 146 and 147: 5.3 Adjustment to price changes imp
Page 148 and 149: 5.3 Adjustment to price changes Q '
Page 150 and 151: 5.5 Complements and substitutes it
Page 152 and 153: 5.6 Transfers in kind that to the s
Page 154 and 155: Review questions • The market dem
Page 156 and 157: Our theory of consumer choice assum
Page 158 and 159: APPENDIX Consumer choice with measu
Page 160 and 161:
6.2 A firm's accounts A sole trader
Page 162 and 163:
6.2 A firm's accounts Inventories I
Page 164 and 165:
6.2 A firm's accounts Earnings When
Page 166 and 167:
6.4 Corporate finance and corporate
Page 168 and 169:
6.5 The firm's supply decision Tabl
Page 170 and 171:
6.6 Marginal cost and marginal reve
Page 172 and 173:
Page 174 and 175:
Page 176 and 177:
6. 7 Marginal cost and marginal rev
Page 178 and 179:
Review questions in total cost when
Page 180 and 181:
Learning Outcomes By the end of thi
Page 182 and 183:
7.2 Production in the short run: di
Page 184 and 185:
7.2 Production in the short run: di
Page 186 and 187:
7.3 Short-run costs As you can see
Page 188 and 189:
7.3 Short-run costs 60 50 SMC - 40
Page 190 and 191:
7.3 Short-run costs down average co
Page 192 and 193:
7.4 A firm's output decision in the
Page 194 and 195:
7.6 Long-run total, marginal and av
Page 196 and 197:
7. 7 Returns to scale - "O 0 DI ..
Page 198 and 199:
7. 7 Returns to scale Scale economi
Page 200 and 201:
7. 7 Returns to scale Table 7.10 Mi
Page 202 and 203:
--1-----1 7.8 The firm's long-run o
Page 204 and 205:
Summary Summary • This chapter di
Page 206 and 207:
Review questions 8 Suppose that fir
Page 208 and 209:
8.1 Perfect competition Perfect com
Page 210 and 211:
8.2 A perfectly competitive firm's
Page 212 and 213:
8.2 A perfectly competitive firm's
Page 214 and 215:
8.3 Industry supply curves In the s
Page 216 and 217:
8.4 Comparative statics for a compe
Page 218 and 219:
.. 8.6 Profit-maximizing output for
Page 220 and 221:
8.6 Profit-maximizing output for a
Page 222 and 223:
8. 7 Output and price under monopol
Page 224 and 225:
8. 7 Output and price under monopol
Page 226 and 227:
8.8 A monopoly has no supply curve
Page 228 and 229:
8.9 Monopoly and technical change f
Page 230 and 231:
8.10 Natural monopoly 'ti QI 0 :I P
Page 232 and 233:
Review questions • Adding at each
Page 234 and 235:
Page 236 and 237:
9 .1 Why market structures differ D
Page 238 and 239:
9 .1 Why market structures differ T
Page 240 and 241:
9.3 Oligopoly and interdependence A
Page 242 and 243:
9.3 Oligopoly and interdependence T
Page 244 and 245:
9.4 Game theory and interdependent
Page 246 and 247:
9.5 Reaction functions demand curve
Page 248 and 249:
9.5 Reaction functions Deriving the
Page 250 and 251:
9.5 Reaction functions Mergers and
Page 252 and 253:
9.5 Reaction functions The Stackelb
Page 254 and 255:
9.7 Strategic entry deterrence Inno
Page 256 and 257:
9.8 Summing up Barriers at the chec
Page 258 and 259:
Review questions Review questions c
Page 260 and 261:
Page 262 and 263:
I 0.1 The firm's demand for factors
Page 264 and 265:
10.2 The firm's demand for labour i
Page 266 and 267:
10.3 The industry demand curve for
Page 268 and 269:
10.4 The supply of labour Table 10.
Page 270 and 271:
10.4 The supply of labour A reducti
Page 272 and 273:
10.5 Industry labour market equilib
Page 274 and 275:
10.5 Industry labour market equilib
Page 276 and 277:
10.6 Transfer earnings and economic
Page 278 and 279:
10. 7 Do labour markets clear? Mini
Page 280 and 281:
10. 7 Do labour markets clear? How
Page 282 and 283:
10.8 UK wages and employment Table
Page 284 and 285:
Summary reducing demand for both fa
Page 286 and 287:
Review questions In a graph with th
Page 288 and 289:
APPENDIX Isoquants and the choice o
Page 290 and 291:
Page 292 and 293:
11.2 Rentals, interest rates and as
Page 294 and 295:
Page 296 and 297:
Page 298 and 299:
11.3 Saving, investment and the rea
Page 300 and 301:
11. 5 The supply of capital service
Page 302 and 303:
11.6 Equilibrium and adjustment in
Page 304 and 305:
11.8 Land and rents supply of skill
Page 306 and 307:
11.9 Income distribution in the UK
Page 308 and 309:
Summary of average earnings. As liv
Page 310 and 311:
Review questions the quantity of ca
Page 312 and 313:
Page 314 and 315:
12.l Individual attitudes to risk S
Page 316 and 317:
12.2 Insurance and risk Life assura
Page 318 and 319:
12.3 Asymmetric information The uti
Page 320 and 321:
12.3 Asymmetric information Executi
Page 322 and 323:
12.4 Uncertainty and asset returns
Page 324 and 325:
12.5 Portfolio selection We use the
Page 326 and 327:
12.5 Portfolio selection Conversely
Page 328 and 329:
12.6 Efficient asset markets Beta i
Page 330 and 331:
12.6 Efficient asset markets II Beh
Page 332 and 333:
12. 7 More on risk You own a copper
Page 334 and 335:
12.8 E-products 100 80 60 - - - - -
Page 336 and 337:
12.8 E-products If Britain had to s
Page 338 and 339:
Summary Britannica shelved Serious
Page 340 and 341:
Review questions 4 You set up a fir
Page 342:
Welfa re economics Normative or wel
Page 345 and 346:
CHAPTER 13 Welfare economics Welfar
Page 347 and 348:
CHAPTER 13 Welfare economics Perfec
Page 349 and 350:
CHAPTER 13 Welfare economics margin
Page 351 and 352:
CHAPTER 13 Welfare economics II) E
Page 353 and 354:
CHAPTER 13 Welfare economics have c
Page 355 and 356:
CHAPTER 13 Welfare economics DD Wit
Page 357 and 358:
CHAPTER 13 Welfare economics .. ;
Page 359 and 360:
CHAPTER 13 Welfare economics 0 Firm
Page 361 and 362:
CHAPTER 13 Welfare economics Was th
Page 363 and 364:
CHAPTER 13 Welfare economics 0 u -
Page 365 and 366:
CHAPTER 13 Welfare economics benefi
Page 367 and 368:
CHAPTER 13 Welfare economics P' "i
Page 369 and 370:
CHAPTER 13 Welfare economics • Di
Page 371 and 372:
CHAPTER 13 Welfare economics Q MPC
Page 373 and 374:
CHAPTER 14 Government spending and
Page 375 and 376:
Page 377 and 378:
Page 379 and 380:
Page 381 and 382:
Page 383 and 384:
Page 385 and 386:
Page 387 and 388:
Page 389 and 390:
Page 391 and 392:
Page 393 and 394:
Page 396 and 397:
Page 398 and 399:
15.2 Some facts Annual real output
Page 400 and 401:
15.3 An overview Since profits are
Page 402 and 403:
15.4 National income accounting
Page 404 and 405:
15.4 National income accounting Sav
Page 406 and 407:
15.4 National income accounting phy
Page 408 and 409:
15.4 National income accounting Hou
Page 410 and 411:
15.5 What GNP measures Table l 5.3
Page 412 and 413:
15.5 What GNP measures Table 15.4 N
Page 414 and 415:
15.6 International comparisons Citi
Page 416 and 417:
Page 418 and 419:
Page 420 and 421:
16. l Components of aggregate deman
Page 422 and 423:
16.2 Aggregate demand S =-A + (1 -
Page 424 and 425:
16.3 Equilibrium output C'I ·- c -
Page 426 and 427:
16.4 Another approach: planned savi
Page 428 and 429:
16. 5 A fall in aggregate demand A
Page 430 and 431:
16.7 The paradox of thrift Table 16
Page 432 and 433:
16.8 The role of confidence The cha
Page 434 and 435:
Review questions 2 Suppose the MPC
Page 436 and 437:
17 .2 Government and aggregate dema
Page 438 and 439:
Page 440 and 441:
Page 442 and 443:
Page 444 and 445:
17.4 Deficits and the fiscal stance
Page 446 and 447:
17.5 Automatic stabilizers and disc
Page 448 and 449:
17 .6 The national debt and the def
Page 450 and 451:
17. 7 Foreign trade and income dete
Page 452 and 453:
17. 7 Foreign trade and income dete
Page 454 and 455:
Summary and employment. In Figure 1
Page 456 and 457:
Review questions 2 The government s
Page 458 and 459:
18. 1 Money and its functions The m
Page 460 and 461:
18.2 Modern banking M_o_d_er_n_ha
Page 462 and 463:
18.3 How banks create money How did
Page 464 and 465:
18.4 Financial crises However, ther
Page 466 and 467:
18.4 Financial crises UK bank inter
Page 468 and 469:
18.5 The traditional theory of mone
Page 470 and 471:
18.6 UK money supply after the 2006
Page 472 and 473:
18. 7 The demand for money flow and
Page 474 and 475:
18. 7 The demand for money Table 18
Page 476 and 477:
Review questions • Financial dere
Page 478 and 479:
Page 480 and 481:
19.2 Traditional means of monetary
Page 482 and 483:
19 .3 Lender of last resort Second,
Page 484 and 485:
19.4 Equilibrium in financial marke
Page 486 and 487:
19.5 Monetary control However, more
Page 488 and 489:
19.5 Monetary control UK quantitati
Page 490 and 491:
19. 7 The transmission mechanism AD
Page 492 and 493:
19. 7 The transmission mechanism Wh
Page 494 and 495:
19. 7 The transmission mechanism In
Page 496 and 497:
19. 7 The transmission mechanism He
Page 498 and 499:
Review questions • A higher inter
Page 500 and 501:
Page 502 and 503:
20.2 The IS-LM model T_he_IS_-_L_
Page 504 and 505:
20.2 The IS-LM model Until 2008 mon
Page 506 and 507:
20.3 The IS-LM model in action Fisc
Page 508 and 509:
20.4 Shocks to money demand Hence,
Page 510 and 511:
20.5 The policy mix IS schedule, IS
Page 512 and 513:
20.6 The effect of future taxes Que
Page 514 and 515:
Summary helped explain positive UK
Page 516 and 517:
Review questions IS-LM diagram, rec
Page 518 and 519:
21. l Inflation and aggregate deman
Page 520 and 521:
21.2 Aggregate supply demand. The A
Page 522 and 523:
21.3 Equilibrium inflation AS0 AS,
Page 524 and 525:
21.3 Equilibrium inflation It was c
Page 526 and 527:
21.4 The labour market and wage beh
Page 528 and 529:
21.6 The adjustment process The eco
Page 530 and 531:
21. 7 Sluggish adjustment to shocks
Page 532 and 533:
21.8 Trade-offs in monetary objecti
Page 534 and 535:
21.8 Trade-offs in monetary objecti
Page 536 and 537:
Review questions • In practice, w
Page 538 and 539:
Page 540 and 541:
22. l Money and inflation rises wit
Page 542 and 543:
22.2 Inflation and interest rates N
Page 544 and 545:
22.3 Inflation, money and deficits
Page 546 and 547:
22.4 Inflation, unemployment and ou
Page 548 and 549:
Page 550 and 551:
Page 552 and 553:
22.5 The costs of inflation find th
Page 554 and 555:
22.5 The costs of inflation You los
Page 556 and 557:
22.6 Controlling inflation Without
Page 558 and 559:
22. 7 The Monetary Policy Committee
Page 560 and 561:
Summary 18 16 14 12 10 8 6 4 2 0 He
Page 562 and 563:
Review questions Money growth (%) I
Page 564 and 565:
Page 566 and 567:
23. l The labour market may simply
Page 568 and 569:
23.2 Analysing unemployment The fig
Page 570 and 571:
23.2 Analysing unemployment of an h
Page 572 and 573:
23.3 Explaining changes in unemploy
Page 574 and 575:
Page 576 and 577:
Page 578 and 579:
23.4 Cyclical fluctuations in unemp
Page 580 and 581:
23.5 The cost of unemployment Count
Page 582 and 583:
23.5 The cost of unemployment in th
Page 584 and 585:
Review questions • Most European
Page 586 and 587:
Page 588 and 589:
24.1 The foreign exchange market do
Page 590 and 591:
24.2 Exchange rate regimes ... ii)
Page 592 and 593:
24.3 The balance of payments statis
Page 594 and 595:
24.4 The real exchange rate In row
Page 596 and 597:
24.6 The financial account Table 24
Page 598 and 599:
24.6 The financial account This sec
Page 600 and 601:
24. 7 Internal and external balance
Page 602 and 603:
24.8 The long-run equilibrium real
Page 604 and 605:
Summary This figure is helpful in t
Page 606 and 607:
Page 608 and 609:
Page 610 and 611:
25. l Fixed exchange rates So far,
Page 612 and 613:
25. l Fixed exchange rates Gordon B
Page 614 and 615:
25. l Fixed exchange rates A shock
Page 616 and 617:
25.3 Devaluation 1 .., Devaluation
Page 618 and 619:
25.3 Devaluation Table 25.1 The 196
Page 620 and 621:
25.4 Floating exchange rates UK. Af
Page 622 and 623:
25.5 Monetary and fiscal policy und
Page 624 and 625:
25.5 Monetary and fiscal policy und
Page 626 and 627:
Summary Summary • With a fixed ex
Page 628 and 629:
Review questions 11 The following t
Page 630 and 631:
26. 1 Economic growth Table 26.1 Re
Page 632 and 633:
26.2 Growth: an overview In the lon
Page 634 and 635:
26.3 Technical knowledge Learning b
Page 636 and 637:
26.4 Growth and accumulation increa
Page 638 and 639:
26.5 Growth through technical progr
Page 640 and 641:
26.6 Growth in the OECD II : e!p ;:
Page 642 and 643:
26.6 Growth in the OECD Within the
Page 644 and 645:
26.6 Growth in the OECD Annual real
Page 646 and 647:
26.8 The costs of growth rate g? If
Page 648 and 649:
Review questions • Potential outp
Page 650 and 651:
Page 652 and 653:
2 7 .1 Trend and cycle: statistics
Page 654 and 655:
27.2 Theories of the business cycle
Page 656 and 657:
27.2 Theories of the business cycle
Page 658 and 659:
.. 27.2 Theories of the business cy
Page 660 and 661:
27 .3 Real business cycles provides
Page 662 and 663:
27.4 Towards a consensus: supply-si
Page 664 and 665:
27.5 An international business cycl
Page 666 and 667:
Review questions • Some swings in
Page 668:
The world economy Part Five focuses
Page 671 and 672:
CHAPTER 28 International trade Is t
Page 673 and 674:
CHAPTER 28 International trade Tabl
Page 675 and 676:
CHAPTER 28 International trade The
Page 677 and 678:
CHAPTER 28 International trade Comp
Page 679 and 680:
CHAPTER 28 International trade Conv
Page 681 and 682:
CHAPTER 28 International trade Fanc
Page 683 and 684:
CHAPTER 28 International trade The
Page 685 and 686:
CHAPTER 28 International trade High
Page 687 and 688:
CHAPTER 28 International trade thei
Page 689 and 690:
CHAPTER 28 International trade Of c
Page 691 and 692:
CHAPTER 28 International trade Conc
Page 693 and 694:
CHAPTER 28 International trade SS
Page 695 and 696:
CHAPTER 28 International trade 7 Wh
Page 697 and 698:
CHAPTER 29 Exchange rate regimes Ta
Page 699 and 700:
CHAPTER 29 Exchange rate regimes co
Page 701 and 702:
CHAPTER 29 Exchange rate regimes re
Page 703 and 704:
CHAPTER 29 Exchange rate regimes 0.
Page 705 and 706:
CHAPTER 29 Exchange rate regimes It
Page 707 and 708:
CHAPTER 29 Exchange rate regimes Ta
Page 709 and 710:
CHAPTER 29 Exchange rate regimes 0
Page 711 and 712:
CHAPTER 29 Exchange rate regimes th
Page 713 and 714:
Page 715 and 716:
Page 717 and 718:
CHAPTER 29 Exchange rate regimes
Page 720 and 721:
Activity 1.1 (a) (b) Activity 2.1 (
Page 722 and 723:
Answers to activity questions Activ
Page 724 and 725:
Answers to activity questions Activ
Page 726 and 727:
Absolute advantage an individual, c
Page 728 and 729:
Glossary Demand for money a demand
Page 730 and 731:
Glossary Gross domestic product (GD
Page 732 and 733:
Glossary Marginal product the margi
Page 734 and 735:
Glossary Percentage change the abso
Page 736 and 737:
Glossary Sole trader a business own
Page 738 and 739:
A absolute advantage 11-12 internat
Page 740 and 741:
Index commodity composition of trad
Page 742 and 743:
Index elasticity of supply 82-4 ele
Page 744 and 745:
Index happiness 594 new products 59
Page 746 and 747:
Index Laffer curve supply-side econ
Page 748 and 749:
Index exports 369 foreign countries
Page 750 and 751:
Index reading diagrams 34-5 real bu
Page 752 and 753:
Index future taxes effect 475-7 gov
show all

David K.H. Begg, Gianluigi Vernasca-Economics-McGraw Hill Higher Education (2011)

Create successful ePaper yourself

Delete template?

Save as template?