The Price Responsiveness of Demand

Tabl. 3 presents some hypothetical numbers for the relation between ticket price and quantity demanded, other things equal.

Tabl. 3. The Demand for Football Tickets

PRICE (£/ ticket)	Quantity of tickets demanded (thousands/game)
12,50 10,00 7,50 5,00 2,50 0	0 20 40 60 80 100

 

Fig. 2 plots the demand curve, which happens to be a straight line in this example.

Ticket price (£)

Quantity of tickets

Figure 2. The Demand for Football Tickets

For given prices of related goods and consumer incomes, higher ticket prices reduce the quantity of tickets demanded.

How should we measure the responsiveness of the quantity of tickets demanded to the price of tickets? One obvious measure is the slope of the demand curve. The downward slope of the demand curve shows that quantity demanded increases as the price of a good falls. Each price cut of £ 1 leads to 8000 extra ticket sales per game.

Suppose, however, that we wish to compare the price responsive ness of football ticket sales with the price responsiveness of the quantity of care demanded: clearly, £ 1 is a trivial cut in the price of a car and will have a negligible effect on the quantity of cars demanded.

When commodities arc measured in different units it is often best to examine the percentage change, which is unit-free. This suggests that we think about the effect of a 1 per cent price cut on the quantity of care and football tickets demanded. Similarly, it is not the absolute number of cars or tickets we should examine but the percentage change in quantity demanded. Not only does this solve the problem of comparing things measured in different quantity units, it also takes account of the size of the market. Presumably an extra sale of 8000 tickets is more important when ticket sales arc 4000 than when they number 40000.

Thus we reach the definition of the price elasticity of demand, which economists use to measure responsiveness to price changes.

The price elasticity of demand is the percentage change in the quantity of a good demanded divided by the corresponding percentage change in its price.

Although we shall shortly introduce other demand elasticities – the cross price elasticity and the income elasticity — the (own) price elasticity is perhaps the most frequently used of the three. Whenever economists speak of the demand elasticity they mean the price elasticity of demand as it has been defined above.

If a 1 per cent price increase reduces the quantity demanded by 2 per cent, the demand elasticity is – 2. Because the quantity falls 2 per cent, we express this as a change of — 2 per cent, then divide by the price change of 1 per cent (a price rise) to obtain —2. If a price fall of 4 per cent increases the quantity demanded by 2 per cent, then the demand elasticity is — 1/2, since the quantity change of 2 per cent is divided by the price change of – 4 per cent. Since demand curve slopes down, we arc either dividing a positive percentage change in quantity (a quantity rise) by a negative percentage change in price (a price fall) or dividing a negative percentage change in quantity (a quantity fall) by a positive percentage change in price (a price rise). The price elasticity of demand tells us about movements along a demand curve and the demand elasticity must be a negative number.

For further brevity, economists sometimes omit the minus sign. It is easier to say the demand elasticity is 2 than to say it is -2. Whenever the price elasticity of demand is expressed as a positive number, it should be understood (unless there is an explicit warning to the contrary) that a minus sign should be added. Otherwise, we should be implying that demand curves slope upwards, a rare but not unknown phenomenon.

VOCABULARY NOTES

to introduce smb to the topic of – познакомить кого-либо с темой the effects of smth on smth – воздействие чего-либо на что-либо

hypothetical numbers – вымышленные, гипотетические числа

the relation between – соотношение между

quantity demanded – требуемое количество

to plot the demand curve – вычерчивать кривую спроса

for given price – для данной (приведенной) цены

to measure the responsiveness of smth to smth – измерять способность, реагировать (реакция) на

obvious measure – очевидная, наглядная мера

the slope of the curve – покатость кривой

the downward slope – движение кривой вниз

ticket sales per game – продажа билетов на игру

trivial (syn. minor, slight) – незначительный

a negligible effect – мелкий, незначительный эффект

to examine smth – рассмотреть, проанализировать

the percentage change – процентное изменение

unit-free – независящий от характера единиц (<? которых измеряются товары)

this suggests (syn. to imply) – это предполагает

similarly – подобным образом

to take account of (syn. to take into account, consideration) – учитывать, принимать во внимание

presumably (syn. probably) – возможно, вероятно

extra sale – дополнительные продажи

to number – насчитывать

to reach the definition – подвести к определению

the price elasticity of demand – ценовая эластичность спроса

to divide by – разделить на

shortly – зд. вскоре

cross price elasticity – перекрестная эластичность цен

income elasticity – эластичность но доходу

the (own) price elasticity – собственно ценовая эластичность

the most frequently used – наиболее часто используемый

as it has been defined above – согласно определению, приведенному выше

to express smth – выражать что-либо

to obtain (syn. to get) – получить, e.g. to obtain a diploma

a positive percentage change – положительное (плюсовое) процентное изменение

a negative percentage change – отрицательное (минусовое) процентное изменение

movements along a demand curve – движения вдоль кривой спроса

for further brevity – для краткости

to omit the minus sign – опускать знак минуса

it's easier to say – легче сказать

unless there is an explicit warning to the contrary – если только не имеет­ся точного указания на обратное

to add – добавить, сложить

adding, addition – сложение, дополнение

addendum – дополнение, приложение

to imply (syn. to suggest) – предполагать, подразумевать

a rare but not unknown phenomenon – редкое, но встречающееся явление

Assignments

I. Suggest the Russian equivalents

the effect of price and income on demand quantities; the downward slope of the demand curve; movements along a demand curve

II. Replace the parts in italics by synonyms

a minor cut; a slight effect; to consider the size of the market; probably; a clear warning

III. Fill in the gaps with the words and expressions from the text

1. How should we measure __ of the quantity of tickets demanded to the price of tickets?

2. Clearly, £ 1 is a __ cut in the price of a car and will have a negligible effect on the quantity of cars demanded.

3. It is not the absolute number of cars or tickets we should examine but __ in quantity demanded.

4. ___ of demand is the percentage change in the quantity of a good demanded divided by the corresponding percentage change in its price.

5. The price elasticity of demand tells us about movements along __ and the demand elasticity must be a negative number.

6. For further brevity, economists sometimes __ the minus sign.

IV. Check your grammar

Shorten the following sentences without changing their meaning, like this:

Nobody likes prices, which are constantly rising. Nobody likes constantly rising prices.

· A demand curve, which slopes.

· John is a person who works very hard.

· We must develop a policy, which fixes prices better.

· Interest rates, which rise will damp down demand.

· An economy, which is rapidly expanding can get out of control.

· Let's look at the information, which corresponds to this in tabular form. Shorten the following sentences without changing their meaning, like this:

The quantity, which we require is 5000 units. The required quantity is 5000 units.

· A demand curve, which has been drawn inaccurately.

· A price, which has been fixed.

· We can see changes in the price of goods, which are related to each other.

· The prices, which we have been given should be seen as hypothetical.

· If we don't use a model, which has been simplified we shall get bogged down.

· Ours is a company, which is managed well.

· An economy, which is poorly run leads to problems in society.

· That is a theory, which is now out of date.

· On the evidence available, that is a conclusion, which is not justified.

V. Find in the text English equivalents for the following

кривая спроса; реакция на...; при прочих равных условиях; товар, предмет потребления; снижение цены на 1 процент; процентное измене­ние в количественном показателе спроса; эластичность спроса в зависи­мости от изменения цены; измерить гибкость реакции на...; положитель­ное (плюсовое) процентное изменение; негативное (минусовое) процент­ное изменение

V. Explain in English

different units; percentage change; unit-free; absolute number

VII. Answer the questions

1. What does the downward slope of the demand curve show?

2. Give the definition of the price elasticity of demand. Explain it in your own words.

3. Name the three types of the demand elasticity as mentioned above.

4. Explain in your own words how to calculate demand elasticity.

5. Explain why economists sometimes omit the minus sign and how negative and positive numbers should be distinguished.

VIII. Translate using all the active possible

1. Построенная (начерченная) кривая спроса отображает воздействие цен и доходов на количественные показатели (величину) спроса. Нисхо­дящая кривая показывает рост спроса по мере снижения цен.

2. Незначительное снижение цены какого-либо товара мало влияет на величину спроса на этот товар.

3. Понятия перекрестной ценовой эластичности, эластичности дохо­дов и собственно эластичности спроса в зависимости от изменения цен помогают экономистам измерять гибкость реакции на изменения цен.

4. В случае нисходящей кривой спроса мы имеем дело либо с повы­шением количественного показателя спроса (положительное процентное изменение) при снижении цен (отрицательное процентное изменение), либо с обратной ситуацией (падение величины спроса при росте цен).

PRICE, INCOME AND DEMAND (ЦЕНА, ДОХОД И СПРОС)

In this chapter we're going to investigate the price elasticity of demand for football tickets. Let's start by looking at Table 4. It reproduces the demand data from Tabl. 3, that is to say, it reproduces it in columns one and two.