微观经济学原理曼昆英文第五章.pptVIP

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * A. Pharmacies raise the price of insulin by 10%. Does total expenditure on insulin rise or fall? B. As a result of a fare war, the price of a luxury cruise falls 20%. Does luxury cruise companies’ total revenue rise or fall? A C T I V E L E A R N I N G 2 Elasticity and expenditure/revenue * ELASTICITY AND ITS APPLICATION * APPLICATION: Does Drug Interdiction Increase or Decrease Drug-Related Crime? One side effect of illegal drug use is crime: Users often turn to crime to finance their habit. We examine two policies designed to reduce illegal drug use and see what effects they have on drug-related crime. For simplicity, we assume the total dollar value of drug-related crime equals total expenditure on drugs. Demand for illegal drugs is inelastic, due to addiction issues. 0 ELASTICITY AND ITS APPLICATION * D1 Policy 1: Interdiction 0 Price of Drugs Quantity of Drugs S1 S2 P1 Q1 P2 Q2 Interdiction reduces the supply of drugs. Since demand for drugs is inelastic, P rises propor-tionally more than Q falls. Result: an increase in total spending on drugs, and in drug-related crime new value of drug-related crime initial value of drug-related crime ELASTICITY AND ITS APPLICATION * Policy 2: Education 0 Price of Drugs Quantity of Drugs D1 S P1 Q1 D2 P2 Q2 Education reduces the demand for drugs. P and Q fall. Result:A decrease in total spending on drugs, and in drug-related crime. initial value of drug-related crime new value of drug-related crime ELASTICITY AND ITS APPLICATION * Price Elasticity of Supply Price elasticity of supply measures how much Qs responds to a change in P. Price elasticity of supply = Percentage change in Qs Percentage change in P Loosely speaking, it measures sellers’ price-sensitivity. Again, use the midpoint method to compute the percentage changes. 0 ELASTICITY AND ITS