Chapter 5. Exercises 1-7. Elasticity and its application.

Summary

This video explores the concept of elasticity in economics, focusing on demand elasticity across various goods and services. The speaker discusses questions from Chapter 5 of Gregory Mankiw's 'Principles of Economics,' comparing the elasticity of different goods such as textbooks, mystery novels, classical music, and heating oil. The video also calculates price elasticity for airline tickets using the midpoint method, examines business travelers versus vacationers, and analyzes income elasticity of demand for compact discs. The video concludes by discussing price elasticity in scenarios like subway ridership and fuel consumption.

Takeaways

• 📘 The video covers exercises 1 to 7 from Chapter 5 on 'Elasticity and its Application' from Gregory Mankiw's 'Principles of Economics'.
• 📚 Required textbooks have inelastic demand because students must buy them despite price changes, unlike mystery novels, which are more elastic as they can be substituted.
• 🎵 Beethoven recordings are more elastic compared to general classical music, which is more inelastic due to the broader nature of the category.
• 🕑 The longer the time horizon, the more elastic the demand becomes. For example, heating oil demand is more elastic over five years than six months.
• 💧 Water is more inelastic than root beer, as it's a necessity, while root beer can be substituted with other beverages.
• ✈️ Business travelers have inelastic demand for airline tickets due to the necessity of travel, while vacationers have elastic demand as they can substitute or cancel trips.
• 💿 Compact disks are normal goods, meaning demand increases with income. Elasticity calculations show how demand shifts based on price and income changes.
• 🧥 Emily's demand for clothing shows that her spending habits are proportionate to her income, demonstrating unit elasticity for clothing demand.
• 🚇 Subway ridership showed inelastic demand after a fare increase, meaning people continued using the subway despite price changes.
• ⛽ Tom’s demand for gas is perfectly inelastic, as he always buys 10 gallons, while Jerry’s demand is unit elastic, adjusting the quantity based on price changes.

Q & A

What is the difference between elastic and inelastic demand in the context of required textbooks and mystery novels?

Required textbooks have inelastic demand because they are mandatory for students, meaning that even if prices increase, students will still need to buy them. Mystery novels have more elastic demand since they are not essential purchases, and consumers can easily substitute them with other forms of entertainment if prices rise.

Why are Beethoven recordings considered to have more elastic demand than classical music in general?

Beethoven recordings are more specific and can be substituted with recordings from other musicians, making them more elastic. Classical music, being a broader category, is more inelastic because the demand for the genre as a whole doesn’t change significantly with price fluctuations.

How does the time horizon affect the elasticity of demand for heating oil?

Heating oil over the next five years has more elastic demand compared to heating oil over the next six months. Over a longer time horizon, consumers have more options to switch to alternative energy sources, making the demand more responsive to price changes.

Why is the demand for water more inelastic compared to root beer?

Water is a necessity, and its demand remains relatively constant regardless of price changes. Root beer, on the other hand, can be easily substituted with other beverages, making its demand more elastic.

How does the price elasticity of demand differ between business travelers and vacationers when the price of airline tickets increases?

Business travelers exhibit inelastic demand because they need to travel regardless of price increases, as it is often a necessity for work. Vacationers, however, have more elastic demand as they can choose not to travel or opt for cheaper alternatives when ticket prices rise.

What is the income elasticity of demand, and how does it apply to compact discs?

Income elasticity of demand measures how the quantity demanded changes with income. In the case of compact discs, they are a normal good, meaning that as income increases, people buy more. When the price increases from $8 to $10, the income elasticity for someone earning $10,000 is unit elastic, while it is inelastic for someone earning $12,000, indicating that higher income makes people less sensitive to price changes.

How can Emily’s decision to always spend one-third of her income on clothing affect her price and income elasticity?

Emily’s income elasticity of demand for clothing is 1, meaning that her spending on clothing increases proportionally with her income. Her price elasticity is also unit elastic, implying that the percentage change in the quantity of clothes she buys matches the percentage change in the price of clothes.

What factors might make the estimate of price elasticity for Subway ridership unreliable?

The estimate may not account for external factors such as seasonal variations, vacation schedules, weather conditions, or economic changes. These variables can influence ridership independently of price changes, making the estimate less reliable.

What is the difference in price elasticity of demand between Tom, who orders 10 gallons of gas, and Jerry, who orders $10 worth of gas?

Tom’s demand is perfectly inelastic since he always orders 10 gallons regardless of the price. Jerry’s demand is unit elastic because he adjusts the quantity of gas he buys based on the price, meaning the percentage change in the quantity demanded matches the percentage change in price.

How does elasticity explain the decline in restaurant spending during economic downturns compared to spending on food eaten at home?

Restaurant meals are considered a luxury good with elastic demand, meaning people reduce their spending on eating out significantly during economic downturns. In contrast, food consumed at home is more inelastic since it is a necessity, and people will continue to buy it even during tough economic times, though they may make slight adjustments to their spending.

Outlines

00:00

📘 Understanding Elasticity of Demand: Required Textbooks vs. Mystery Novels

This paragraph explains the concept of elasticity of demand by comparing required textbooks with mystery novels. Required textbooks are considered inelastic because students must buy them regardless of price changes. In contrast, mystery novels are more elastic since consumers can choose not to purchase them or substitute them with other genres of literature.

05:03

🎶 Elasticity in Music Preferences: Beethoven vs. Classical Music

The paragraph examines the elasticity of demand in music, comparing Beethoven recordings (more elastic) with classical music in general (more inelastic). Consumers can easily substitute Beethoven’s music with other composers, making it more elastic, while classical music as a whole is harder to substitute, leading to a more inelastic demand.

10:03

⏳ Time Horizons and Elasticity: Heating Oil Over Different Periods

This section explores how time affects the elasticity of heating oil demand. Heating oil over a short period (six months) is more inelastic since people have fewer alternatives in the short term. Over a longer period (five years), heating oil becomes more elastic as consumers have more time to find substitutes or alternative energy sources.

15:07

🚰 Elasticity of Water vs. Root Beer

Here, the comparison between water and root beer illustrates the difference in elasticity. Water is a necessity and is more inelastic since people will continue to purchase it despite price increases. Root beer, being non-essential, has more elastic demand as consumers can easily switch to other beverages if the price rises.

20:08

✈️ Business Travelers vs. Vacationers: Elasticity of Airline Tickets

The paragraph discusses the elasticity of demand for airline tickets between business travelers (more inelastic) and vacationers (more elastic). Business travelers must fly regardless of price changes due to work obligations, while vacationers are more sensitive to price changes and can choose alternative modes of transportation.

25:10

💿 Income Elasticity of Compact Discs: A Case Study

This section uses the midpoint method to calculate the price elasticity of compact discs at different income levels. The analysis shows that compact discs are a normal good, as demand increases with higher income levels. Additionally, demand becomes less elastic at higher income levels since consumers are less affected by price changes.

🧥 Emily’s Clothing Demand: Price and Income Elasticity

This paragraph explores Emily’s demand for clothing and how it reacts to changes in her income and the price of clothing. It shows that clothing is a normal good, as she spends more on clothing as her income rises. Both her income elasticity and price elasticity of demand are calculated, demonstrating a unit elastic response to price changes.

🚇 Subway Ridership and Elasticity After a Fare Increase

The paragraph examines the price elasticity of demand for subway rides in New York following a fare increase. Despite a significant price increase, the drop in ridership was relatively small, indicating inelastic demand. The analysis suggests that transit authorities can increase revenue by raising fares due to the necessity of public transportation.

⛽ Gasoline Elasticity: Tom vs. Jerry

This section contrasts the elasticity of demand between two drivers: Tom and Jerry. Tom always buys 10 gallons of gas, making his demand perfectly inelastic, while Jerry always spends $10 on gas, resulting in unit elastic demand. Jerry’s demand changes with price fluctuations, while Tom’s does not.

🍽️ Restaurant Meals vs. Home Cooking: Elasticity During Economic Downturns

The paragraph explains why spending on restaurant meals declines more during economic downturns compared to spending on food for home consumption. Restaurant meals are a luxury good with elastic demand, meaning people reduce dining out when incomes fall. In contrast, food for home consumption is a necessity and has inelastic demand.

Keywords

💡Elasticity of Demand

Elasticity of demand measures how much the quantity demanded of a good responds to changes in its price. In the video, it's explained using examples like mystery novels and required textbooks, where textbooks have inelastic demand because students need to buy them regardless of price, while novels have more elastic demand since they are discretionary purchases.

💡Inelastic Demand

Inelastic demand refers to situations where changes in price have little effect on the quantity demanded. The video provides examples such as required textbooks and heating oil during short periods, highlighting that consumers will buy these goods even if prices rise significantly because they are necessities.

💡Midpoint Method

The midpoint method is a technique for calculating the percentage change in quantity demanded or price. In the video, it is used to determine the price elasticity for business travelers and vacationers when airline ticket prices change, showing how business travelers are less sensitive to price increases compared to vacationers.

💡Normal Goods

Normal goods are those for which demand increases as consumer income rises. The video explains this concept using compact discs as an example: as income increases from $10,000 to $12,000, people buy more compact discs, demonstrating the typical behavior of normal goods.

💡Unit Elasticity

Unit elasticity occurs when the percentage change in quantity demanded is equal to the percentage change in price. In the video, it is illustrated with the example of compact discs where, for certain price ranges, the change in demand is proportional to the price increase, resulting in unit elasticity.

💡Income Elasticity of Demand

Income elasticity of demand measures how the quantity demanded of a good responds to changes in consumers' income. The video uses the example of compact discs to show that as income rises, demand increases, and highlights how this elasticity differs depending on the price level.

💡Price Elasticity of Demand

Price elasticity of demand refers to how sensitive consumers are to price changes. In the video, the concept is applied to various cases, such as the price of airline tickets and compact discs, to demonstrate how different groups (e.g., business travelers vs. vacationers) react to price changes.

💡Substitutes

Substitutes are goods that can replace each other in consumption. The video discusses this in the context of mystery novels being more elastic compared to required textbooks, as people can easily switch between different genres of novels or opt not to buy them, making them more elastic.

💡Luxury Goods

Luxury goods are products that see a significant decrease in demand during economic downturns, as they are not necessities. In the video, restaurant meals are used as an example of luxury goods, which see a larger decline in demand compared to home-cooked food during a recession.

💡Inferior Goods

Inferior goods are goods for which demand decreases as income rises. The video touches on this concept briefly when discussing subway ridership, suggesting that as people earn more, they might choose to drive instead of using public transport, making subway rides an inferior good for some.

Highlights

The video covers exercises 1 to 7 from Chapter 5 of 'Elasticity and its Application' in Gregory Mankiw's 'Principles of Economics.'

Explanation on elastic demand for mystery novels versus required textbooks: Required textbooks have inelastic demand due to necessity, while mystery novels are more elastic since they can be substituted.

Beethoven recordings have a more elastic demand compared to classical music as a genre, which is more inelastic due to broader demand.

Heating oil's elasticity changes over time; it's more elastic in a 5-year span compared to a 6-month period, allowing more time for substitutions.

Water is more inelastic compared to root beer since it's essential and has fewer substitutes.

The video demonstrates the calculation of price elasticity of demand for business travelers and vacationers using the midpoint method, showing business travelers have more inelastic demand due to necessity.

Vacationers exhibit more elastic demand for airline tickets compared to business travelers, as they can easily switch to alternative travel methods if prices rise.

Compact discs are considered a normal good, as demand increases with higher income, demonstrating positive income elasticity.

Price elasticity of demand for compact discs shows a unit elastic relationship when price changes from $8 to $10, meaning the quantity demanded changes proportionately with the price.

Income elasticity of demand is shown to be higher for compact discs when income increases from $10,000 to $12,000, especially when the price of CDs is higher.

Emily’s demand for clothing is unit elastic, meaning her clothing consumption rises in proportion to her income increase, maintaining a constant spending ratio.

Spending on clothing becomes less elastic if Emily decides to spend only one-fourth of her income, causing her demand curve to shift leftward.

Subway ridership is inelastic, as demonstrated by the 4.3% decline in ridership after a fare increase, with the fare hike still increasing overall revenue.

Tom’s demand for gasoline is perfectly inelastic since he always buys 10 gallons, regardless of price changes.

Jerry’s demand for gasoline is unit elastic, as he buys gas worth a fixed dollar amount, meaning his quantity demanded changes proportionately with the price.

Economic downturns lead to more elastic demand for restaurant meals, as consumers quickly reduce luxury spending, while home food consumption remains inelastic due to necessity.

Transcripts

hi in this video we are going to solve

the exercises from one to seven of

chapter 5 elasticity and its application

this is a book of Gregory manual

principles of economics so the first

question says

of the following pairs of good which

good would you expect to have more

elastic demand and why a require

textbooks or mystery novels so I would

say the the good with

um

higher

the elastic demand

is Miss renewable because comparable

required textbooks they are mandatory

you need to buy them even if there is a

change in the price

you need to spend more but you will buy

them in others I have the mystery novels

they are not completely required we are

talking about more something more

elastic that you can change so for

example you can change buying food with

another generous or Another Part of

literature okay

the B is b solving recording or

classical music recorder in general

so as we said before

when we have like more specific good in

this case is Beethoven recording this is

like a vanilla ice cream so you can

change for another another flavor so in

this case you can change for another

musician for example so

so in this case you will change

Beethoven easily so when we are talking

about more General Goods as classical

music it turns out more inelastic so in

this case this is going to be this is

gonna be the Beethoven recordings okay

so this is going to be more elastic

more elastic good so because classical

music requires more General so it is

inelastic so heating oil during the next

six months or hitting all during the

next five years so so as you remember

elastic change

changes with the time Horizon the longer

the Horizon the more elastic is the good

so in this case it's going to be heating

oil during the next five years okay this

is going to be in the time Horizon it's

going to be more time so you can time

for substitute this kind of energy

so G root beer of water so again we need

more water than beer in theory or mostly

people so in this

and in this case we have the water so

it's going to be more inelastic if they

change the price

10 percent even you need to spend more

is something that you need to pay so the

demand is not going to change too much

instead of broadbeard you can find

another beverage that can

change or or like yeah it can be like

a substitute of this good

second suppose that business Travelers

and vacationers have the following

demand for airline tickets from New York

to Boston so here we have the price

which goes from 150 to 300. in the other

column we have the quantity demanded for

business Travelers so we see here 200

2

000 to 100 for 150 dollars until

1800 for 300 in the last column we have

the quantity demanded by the vacationers

they have one thousand for 150 and 1 and

400 for 300 for 300 price

okay

so the question is

as the price

of tickets rises from 200 to 250 what is

the price elasticity of demand for one

business Travelers and vacationers we

use the midpoint method in your

calculations so here we are going to

find out the business Travelers so

remember the elasticity of demand is

given by the change the percentage

change of the quantities in the

numerator over the change and percentage

of the price so in this case we are

finding from 200 to 250 so this is going

to be the changes for the Travelers it's

going to be

1900 minus two thousand and the midpoint

between these two is

1950 over the change in the price the

final price which is 250 T and minus 200

over the midpoint which is 225. so we

find this value

what does it mean it means that is less

or lower than one so this is inelastic

as we expected because business

Travelers they need to they need to

travel so maybe if the anything is like

the change

of the price anyway they will travel

because they need to so in this case why

is given that because the change of the

quantities is much or less than the

change are in the price so here we have

we have the elasticity

now we are going to do the same for

vacationers we have the denominator

which which is exactly the same because

the change for in the price for business

Travelers and the cashioners is the same

on the other side we have the change

which is going to be from

from 600 uh

in this case to 800 okay the price

before was sorry again was 800 and after

the price is going to be 600 and they

made 0.700 and now we have 1.28

so this is as we expected is larger than

one so it means that they are they are

more sensitive for the change uh for the

change in the price there is a change in

the price but the quantities change more

proportionally than the price change

so here

B why might vacation we have different

our system business Travelers so uh as

we said is more necessary for business

Travelers by cash owners that maybe they

would say okay the flight is to is too

expensive so we can go instead of going

from New York to Boston we can just go

by car or we can go to another place

instead of business because they have to

go they have an appointment they have an

agenda they have a schedule so they have

to do it so the elasticity they are much

more inelastic okay

third suppose that your demand schedule

for compact disk is as follows okay so

imagine here we have the price from a to

16. this uh are the quantity demanded

for an income of ten thousand and here

we have the quantity demanding demanded

of income 12 12 000. as you see here we

see when you have more money

here you demand more for each price

okay you demand more so even without

analyzing any equation you already

realize that for you the compact discs

they are a normal good what is what

normal good is a normal good is a good

when you receive more money or more

income you demand more this is a normal

good so here we have

the first question use the midpoint

method to calculate your price

elasticity of demand as the price of

compact disk increases from 8 to 10 if

one your income is ten thousand and

second your income is twelve thousands

so first first of all we have the the

income

which is ten thousand so remember we

have in the numerator the change in

percentage of the quantities which is

going to be given by the midpoint method

so we are going to have the quantities

we are evaluating from 8 to 10 so we

have uh in this case 32

okay

um is going to be -40

because this is the change over the

midpoint which is 36 and the change in

the price is from 10 to 8 from 8 to 10.

so it's going to be 10 minus 8 over the

midpoint which is 9. this is one so what

does it mean 1 means that uh there's

gonna be a the same proportion of the

change and the quantities and the change

in the price this is unit elastic it's

going to be a proportion relation for

the other side for the income Which is

higher we have the same price the change

in the new denominator which is exactly

the same as the spread as the previous

one and here we have 45 and 50. if you

see here the change in the quantities is

less than the change the price which is

expected because you because of you have

more money you are not so affected by

the change of the price you consume

almost like the same I mean almost the

same so here is inelastic because it's

less than one okay so now they asked for

calculate your income elasticity of

demand as your income increases from 10

000 to 12 000 if one the price is 12

until the price is 16. so here remember

the table and now we are going to start

analyzing when the price is 12. so when

the price is 12 12 when we are finding

out uh about the elasticity of

or of demand are you income increases

okay so we are we are going to analyze

the elasticity

um

of your income okay so instead of having

the price here you will put here the

income so here we're analyzing with the

price fix which is 12 so it's going to

be the change in quantity is going to be

30 minus 24 over the midpoint which is

27. on the numerator we will put the

change in the income which is 12 000

um and minus 10 000 over the midpoint

so we have here one point YouTube

periodic okay it continues so here we

figure out that is positive so when it's

positive as we said before this is a

normal good it means when the income

increases the quantities as well for the

case of price of 16 we evaluate the same

the denominator is exactly the same but

the quantities is going to be fixed with

price of 16 which is going to be from 8

to 12 is going to be 12 minus 8 over the

midpoint so here we have 2.2 so we have

again

the in this case the quantities

increases even more than the income

increase but what what is important here

is design so here we see again that this

is a normal good for the for the guy

Emily has decided always to spend one

third of her income on clothing a what

is her income elasticity of clothing

demand so let's imagine that Emily has a

salary of 1200 so it means that she

spends always four hundred dollars in

clothing because it's one third of one

thousand two hundred

and there is an increase to

1500 for her salary

then she will spend 500 on clothes so

here

imagine that the price of the one piece

of clothes whatever she buys paints

sweaters I don't know whatever thing is

is 80 dollars for each piece of clothes

then she will be first given that she

will spend 400 she will spend 400 over

80 and after 500 over 80 80 given the

increase in the

in the in the salary so but so here

whereas income elasticity of cost demand

so here in the denominator we have the

hypothetical change in the salary from 1

200 to 1 500. so so here we have and we

have a denominator here we have over the

midpoint and here the quantities this is

uh 500 over 80 which is 6.25 and 400

over 80 which is 5 and over the midpoint

so what we realize here that the

elasticity

income is one so this is positive so

this is a normal good what does it mean

a normal good is a good a good word when

your income

is higher you will consume more so in

this case you would figure out here that

they she will consume more but

proportionally what he she has earned

more okay so the next Point says what is

her price elasticity of glossy or

clothing demand so imagine that each

goodies area as we said before so she

will consume five and if there is an

increase to 100 she will consume four

okay

because remember that the price is one

third of her income which is 400 dollars

so here we have the change in the

quantities which they are going to be 4

minus five and the midpoint 4.5 and the

changes in the price is going to be 100

which is the which is the original the

final price minus the initial price

which which is 80 at the midpoint this

is one this is unit elastic what does it

mean it means that the proportion of the

change in the quantities given the

increase in the price is exactly the

same as the change in the price so this

is the elasticity of demand is unit

elastic

see if Emily's tastes change and she

decides to spend only one-fourth of her

income on clothing how does her demand

curve change what are her income

elasticity and price elasticity now so

first her demand curve will be shift

shifted to the left given the less

quantity available for spending remember

that she has initial salary

1200 and after one one thousand five

hundred but with the change she will

have 1 200 divided four okay which is

going to be

300 and with the increase of this salary

is going to be this divided 4 which is

375. so imagine that the price is 80 for

each piece of clothes so then she will

first just consume

300 over 80 and after

375 over 8. so we're going to figure out

about

her elasticity

so here we have the elasticity of income

which is this is the income and those

are the quantities consumed this is

going to be

375 over 80 is 3 sorry 300 over 80 is

going to be 3.75 and this one is going

to be

4.6875 over the midpoint so we have here

one so we have an interesting conclusion

even the tastes has changed and she now

she will spend less in clothes given

that she will spend the same proportion

the elasticity of the in income is going

to be exactly the same and it's going to

be behave as a normal good remember

normal good

not remember good

um

you have like

higher higher price

sorry you have higher income more

quantities demanded

okay so here I would like to find out

for the case of the elasticity of demand

here the price is going to be 100 minus

80 over 9 over 90. and here we have the

quantities that's going to be exactly

the same and we have one so it's

interesting again even the the price

that I mean the quantities that Emily is

going to spend on clothing given that

there is a proportion that she will

still maintain or she will keep this

proportion the elasticity of income and

demand is going to be exactly the same

why is what is going to be the the great

like the most important change the most

important change is that she will

consume less of clothing

so the fifth point the New York Times

reported that Subway

readership's readership declined after a

fair increase

there were nearly 4 million fewer

Brothers in December 1995. the First

full month after the price of a token

increased 25 cents to 150.

then in previous uh December a 4.3

percent decline a use this data to

estimate the price elasticity of demand

for Subway Riders so here I'm just

summarized the information so you have 4

million fewer ride Riders which is

4.3 percent required there is the

initial price which was was this one and

after the increase of 25 the final price

is this

so the first we need to figure out the

price elasticity of demand so remember

the numerator we have the personal

change of quantities which is 4.3 so as

a number I divided of divided by 100 so

this is going to be 0.043 the change in

the price by the midpoint method is

going to be 1.5 minus 1.25 over this one

which is the midpoint so here we have

the result so it means as expected that

this is an inelastic good people need to

move people need to transport so in this

case they don't like take uh pay much

attention to this change because they

are still the change in the quantities

was not as representative as the change

of the price

according to your estimate what happens

to the transit Authority's Revenue when

the fair Rises this is inelastic okay so

remember which is lower than one so it

means that an increase in the price

brings a larger increase in the income

so given the naturality of inelastic the

characteristic when you increase the

price you increase your Revenue so

opposite to the elastic the C Point why

might you estimate of elasticity be

unreliable so from my point of view I

think is reliable so you can think more

a little bit about that but maybe you

are not thinking taking into account

some variables because as you know in

economics we think about set respirables

so what does it mean when you have like

one variable you are whole you're you're

taking like you hold all the other

variables which maybe cannot be so

realistic so for example imagine about

one simple variable the more people

vacation so if there is more people in

vacation they don't need to commute

every single day so maybe it is going to

be a decrease

in the

is going to be a decrease in the in the

transportation or maybe there is less

people on vacation so for this reason

this was a little change on quantities

because people still were using the

subway what about the weather conditions

so for example the weather conditions I

don't know if I spell okay maybe I'm not

sorry whether conditions so in this case

for example there is a hurricane or a

typhoon or whatever

conditions in this in this city so maybe

it makes the there is a decrease

and the Subway or maybe in the country

because you cannot take the car because

impossible is a lot of snow in the

streets so you need to take the subway

which is the unique is the only way you

travel Transportation which work in the

city or maybe in can condition maybe

this time is Crisis so this is the the

big crisis so people they cannot take

more cars so they can to sell them so

they start to use

they start to use Subway or maybe the

other case they receive more money so

they abandoned because it's an inferior

good which are in very good is when you

receive more money you consume less of

this good in this case the subway maybe

you receive more money you go you

commute by car or okay so it could be

this these things make our elasticity a

little bit unreliable okay

so six point two drivers Tom and Jerry

each drive up to a gas station before

looking at the price each place is an

order

Tom says at like 10 gallons of gas Jerry

says I'd like 10 worth of gas what is

each driver's price elasticity of demand

so I'm going to suppose that the price

per gallon is two dollars and there is

an increase of two two dollars fifty so

I'm going to find out which is the

elasticity price of demand for Tom and

for Jerry here I'm going to find out

about term elasticity here as you

realize here he always asks for 10

gallons of 10 gallons of gas which makes

the sorry here is not the income here is

price okay it didn't I made a mistake so

here is going to be 10 minus 10 over 10

which is going to be the numerator zero

so it's going to be zero with us what

does it mean this is a perfectly

inelastic demand it doesn't matter the

price for Tom because he will always ask

for 10 gallons so they consume is going

to be exactly the main the same no

matter the price and the other guy case

we have the Jerry's elasticity which is

here again price made the mistake so

here we have

so given that he will pay 10 worth of

gas is going to be the price is going to

change the same as this one from two to

two five this is the midpoint and here

the change is going to be 10 over 2

and which is this the initial and this

one is going to be the final 10 over 2.5

which is 4 and over the midpoint here is

one which means you need elastic so the

same proportion of the change of the

price is going to be the same proportion

of the change of the quantity demanded

by durian

so this and the last Point economists

have observed that spending on

restaurant meals declines more during

economic downturns than thus spending on

food to be eaten at home how might the

concept of elasticity help to explain

phenomenon so here when we think about

luxury good is something when you have

economic downturn you have some economic

problem you immediately you could the

consume so this is the case of eat

outside so this is an elastic good but

when you have the necessity of it maybe

you safe you put away a little money

when when when you go to the supermarket

but basically you need to eat so this is

going to be more inelastic okay so I

hope it has worth have great success

with economics and see you the next

video bye bye