### 날짜 : 2024-03-23 16:01 ### 주제 : ---- ### 3.3 Price Elasticity of Demand and Supply Price elasticity is a measure used in economics to show how the quantity demanded or supplied of a good responds to a change in its price. It's a critical concept that helps businesses and policymakers understand the potential impact of pricing decisions and policy changes on markets and on consumer and producer behaviors. #### Price Elasticity of Demand Price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good. It's represented by the formula:  - If PED > 1, the demand is **elastic**, which means consumers are very responsive to price changes. A small decrease in price leads to a large increase in quantity demanded. - If PED < 1, the demand is **inelastic**, meaning consumers are not very responsive to price changes. A decrease in price doesn't lead to a substantial increase in quantity demanded. - If PED = 1, the demand is **unit-elastic**, where the percentage change in quantity demanded is equal to the percentage change in price. Several factors affect the price elasticity of demand: - **Availability of Substitutes**: If there are close substitutes for a good, the demand for the good is more likely to be elastic. - **Proportion of Income**: Goods that take up a large percentage of consumers' income tend to have more elastic demand. - **Necessity vs Luxury**: Necessities tend to have inelastic demand, while luxuries are more elastic. - **Time Horizon**: Demand is usually more elastic over the long run as consumers find alternatives or adjust to price changes. #### Price Elasticity of Supply Price elasticity of supply measures how much the quantity supplied changes in response to a price change. Its formula is:  - If PES > 1, the supply is **elastic**, implying that producers can increase output significantly when prices rise. - If PES < 1, the supply is **inelastic**, indicating that output doesn't increase much when prices rise. - If PES = 1, the supply is **unit-elastic**, meaning the percentage change in quantity supplied is the same as the percentage change in price. The elasticity of supply depends on factors such as: - **Flexibility of Production**: If producers can easily adjust the amount of goods they produce, the supply is more elastic. - **Time to Respond**: In the short term, the supply is usually inelastic because it takes time to increase production levels. Over the long term, supply can become more elastic as firms have more time to adapt to price changes. - **Availability of Factors of Production**: If it's easy to acquire more factors of production (like labor and materials), supply will be more elastic. #### Examples of Price Elasticity - **Gasoline**: Generally, the demand for gasoline is inelastic in the short term because there are few immediate substitutes for it. Consumers will continue to buy gasoline even when prices rise a little. However, if prices remain high over time, people may shift to public transportation, buy more fuel-efficient cars, or move closer to work – making demand more elastic in the long run. - **Salt**: Salt has an inelastic supply in the short term. If the price of salt goes up, it's not easy for producers to quickly increase production because the process of mining salt can't be sped up suddenly. - **Luxury Cars**: High-end luxury cars tend to have an elastic demand; a slight decrease in price could result in a significantly larger quantity of cars sold as these goods are more sensitive to price changes due to luxury status and the presence of close substitutes. Understanding price elasticity is valuable for making economic decisions. For businesses, it helps in setting prices and predicting the impact of price changes on revenue. For policymakers, it aids in foreseeing how tax changes could affect buying habits and the broader economy.