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a
P1
b
P2
D
O Q1 Q2 Quantity
Sumarto Eka Putra, Presentasi Microeconomic @2010
Market Supply and Demand
S1
S2
Price
a
P1
c
P3 D'
b
P2
D
O Q1 Q2 Q3 Quantity
Sumarto Eka Putra, Presentasi Microeconomic @2010
Price Elasticity of Demand
• Measuring price elasticity of demand
%QD / %P
P ($) DQ ¸ DP
m Ped =
mid Q mid P
8
7 P = –2
n
6
Q = 10
Mid P
2 Demand
0
0 10
15 20 30 40 50
Mid Q
Sumarto Eka Putra, Presentasi Microeconomic @2010
10
Measuring Elasticity
DQ DP
P ($) Ped = ¸ mid P
mid Q
m
8 10 -2
=
15
¸7
7 P = –2 = 10/15 x -7/2
n
6 = -70/30
Q = 10 = -7/3 = -2.33
Mid P
2 Demand
0
0 10 15 20 30 40 50
Mid Q
Sumarto Eka Putra, Presentasi Microeconomic @2010
Price Elasticity of Demand
• Determinants of price elasticity of demand
– number and closeness of substitute goods
• Illustrating TE graphically
Expenditure rises
b as price falls
5
a
4
D
0 10 20 Q
Sumarto Eka Putra, Presentasi Microeconomic @2010
Price Elasticity of Demand and
Total Consumer Expenditure
a
4
0 15 20 Q
Sumarto Eka Putra, Presentasi Microeconomic @2010
Price Elasticity of Demand and
Total Consumer Expenditure
• Special cases
PeD = 0: Totally inelastic demand
PeD = : Infinitely elastic demand
P2 b
P1 a
O Q1 Q
Sumarto Eka Putra, Presentasi Microeconomic @2010
Infinitely Elastic Demand (PÎD = ¥)
P
a b
P1 D
O Q1 Q2
Q
Sumarto Eka Putra, Presentasi Microeconomic @2010
Price Elasticity of Demand and
Total Consumer Expenditure
• Special cases
– PeD = 0: Totally inelastic demand
– PeD = : Infinitely elastic demand
– PeD = –1: Unit elastic demand
a
20
b
8
D
O 40 100 Q
Sumarto Eka Putra, Presentasi Microeconomic @2010
Price Elasticity of Supply
• Meaning of price elasticity of supply
P1
O Q1 Q
Sumarto Eka Putra, Presentasi Microeconomic @2010
Supply Curves with Different Price Elasticity of Supply
P
S1
S2
P2
P1
O Q1 Q2 Q3 Q
Sumarto Eka Putra, Presentasi Microeconomic @2010
Price Elasticity of Supply
– time period
• immediate: very inelastic
• short run: some responsiveness
• long run: highly elastic
Sumarto Eka Putra, Presentasi Microeconomic @2010
Other Elasticities
• Income elasticity of demand
– measurement
%QD / %Y
– determinants
• degree of necessity
• rate at which people are satisfied
• level of income
– normal goods; income elasticity positive
– inferior goods; income elasticity negative
– applications; marketing, planning, govt. policy
Q
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dibelanjakan untuk
barang ini, walaupun
proporsinya cenderung
menurun
Q
Barang yang bersifat
inelastis terhadap
pendapatan setelah
tingkat pendapatan
I
I
II
C
– determinants
• closeness of substitute goods
• closeness of complementary goods
P1
a
D2
D1
O Q1 Q
Sumarto Eka Putra, Presentasi Microeconomic @2010
Response of Supply to an Increase in Demand
P
S short-run
b S long-run
P2 c
P3
P1
a
D2
D1
O Q1 Q2 Q3 Q
Sumarto Eka Putra, Presentasi Microeconomic @2010
Markets and Adjustment over
Time
• Short-run and long-run adjustment
– short-run and long-run supply curves
– short-run and long-run demand curves
S2
a
P1
O Q1 Q
Sumarto Eka Putra, Presentasi Microeconomic @2010
Response of Demand to an Increase in Supply
P
S1
S2
a
P1
P2 b
D short-run
O Q1 Q2 Q
Sumarto Eka Putra, Presentasi Microeconomic @2010
Response of Demand to an Increase in Supply
P
S1
S2
a
P1 c
P3
P2 b
D long-run
D short-run
O Q1 Q2 Q3 Q
Sumarto Eka Putra, Presentasi Microeconomic @2010
Response of Demand to a Decrease in
Supply
P2 b
P1 a
D2
D1
O Q
Sumarto Eka Putra, Presentasi Microeconomic @2010
Stabilising Speculation: Initial Price Rise
P
S1
S2
P2 b
P3 c
P1 a
D2
D3
D1
O Q
Sumarto Eka Putra, Presentasi Microeconomic @2010
Stabilising Speculation: Initial Price Fall
P
S1
P1 a
D1
P2 b
D2
O Q
Sumarto Eka Putra, Presentasi Microeconomic @2010
Stabilising Speculation: Initial Price Fall
P
S2
S1
P1 a
P3 c
D1
P2 b
D2 D3
O Q
Sumarto Eka Putra, Presentasi Microeconomic @2010
Markets and Adjustment over
Time
• Speculation
– stabilising speculation
– destabilising speculation
S1
P2 b
P1 a
D2
D1
O Q
Sumarto Eka Putra, Presentasi Microeconomic @2010
Destabilising Speculation: Initial Price Rise
P
S2
S1
P3 c
P2 b
P1 a
D3
D2
D1
O Q
Sumarto Eka Putra, Presentasi Microeconomic @2010
Destabilising Speculation: Initial Price Fall
P
S1
P1 a
P2 b
D1
D2
O Q
Sumarto Eka Putra, Presentasi Microeconomic @2010
Destabilising Speculation: Initial Price Fall
P
S1
S2
P1 a
P2 b
P3 c
D1
D2
D3
O Q
Sumarto Eka Putra, Presentasi Microeconomic @2010
Markets and Adjustment over
Time
• Dealing with uncertainty and risk
– a market in information
• Information is valuable, will be paid for
surplus
minimum
price
Pe
O Qd Qs Q
Sumarto Eka Putra, Presentasi Microeconomic @2010
Markets Where Prices are
Controlled
– consequences
• dealing with resulting surpluses
• cushion inefficiency
• discourage production of more efficient
alternative products
• higher prices for consumers
– eg: Common Agricultural Policy (EU); OPEC
Pe
maximum
price
shortage
O Qs Qd Q
Sumarto Eka Putra, Presentasi Microeconomic @2010
Markets Where Prices are
Controlled
– consequences
• dealing with resulting shortages
• preferential treatment to particular customers
• rationing
• black markets