ECON 1012/1013
Macroeconomics Summaries
Chapters 4-8
DISCLAIMER:
These summaries are prepared with the intent to closely align with the content of the specified textbook. Full credit and acknowledgment are given to the authors and publishers of the
original textbook for the material on which these summaries are based. All images are taken directly from:
Parkin, M. et al. (2020) Economics: Global and Southern African perspectives. 3rd edn. Cape Town, Western Cape: Pearson South Africa.
While every effort has been made to ensure accuracy, the author of these summaries cannot guarantee that the information contained herein is entirely free from errors or omissions. As
such, no liability is accepted for any inaccuracies, errors, or any resultant consequences arising from the use of this material.
Users are encouraged to refer to the original textbook for comprehensive understanding and to verify any information. Any reliance you place on the content of these summaries is
strictly at your own risk.
Be advised that the distribution of these notes via any platform, including but not limited to email, WhatsApp, AirDrop, or any other digital means, leaves an identifiable trail.
Unauthorized distribution or reproduction of these materials may be considered a violation of plagiarism and copyright laws in South Africa. Perpetrators found involved in such actions
are liable to be prosecuted under the relevant legal provisions. Exercise caution and respect intellectual property rights.
Unauthorised dissemination/distribution of this document is strictly prohibited.
By downloading this document, the purchaser acknowledges and agrees to the following terms:
The purchaser accepts full responsibility to refrain from distributing, sharing, or reproducing this document, in whole or in part, without the express written consent of the author. Any
unauthorized distribution is strictly prohibited.
Should the purchaser be found distributing or enabling the distribution of this document, they acknowledge that they may be subject to legal action. The author reserves the right to take
legal recourse, including but not limited to initiating court proceedings, against any individual or entity found in violation of these terms.
Your download and use of this document indicate your acceptance of these terms and your understanding of the potential legal consequences of non-compliance.
, CHAPTER L easily
PRICE ELASTICITY Of DEMAND
A UNITS-FREE MEASURE OF RESPONSIVENESS OF THE QUANTITY DEMANDED Of A GOOD TO A CHANGE
Price whew all other everses or awa blaws Rema the same
IN ITS
·
CALCULATED BY USING FORMULA : O IN QUANTITY DEMANDED EXPRESSED AS I . OF AVERAGE QUANTITY
%. IN PRICE
EXPRESSED AS Y OF AVERAGE PRICE .
·
BY USING AVERAGE PRICE + QUANTITY :.. CALCULATES THE ELASTICITY AT A POINT ON DEMAND CURVE :: MIDWAY BETWEEN
THE ORIGIONAL POINT+ NEW POINT
ELASTICITY Of DEMAND USING POINT ELASTICITY EQUATION :
·
1. P &P
stopt
·
ep
= =
x
180 p ,
+ Pc
x
Pave 2 ·
SLODE = &P
WQ
% Q &Q
·
100 ANSWER ABSOLUTE VALUE
= =
. ·
x
·
MEASURES GLASTICITY AT A DOINT
Qave
·
AVERAGE PRICE + QUANTITY
ORIGIONAL POINT
- vibrio
-
% QD
GIVES MOST PRECISE MEASUREMENT OF ELASTICITY
.
PRICE ELASTICITY OF DEMAND =
I . UP
= Q/Qave
- UP/Pave
AT MIDPOINT BETWEEN ORIGIONAL PRICE + NEW PRICE =2/10
1/20
=4
·
PERCENTAGES + PROPORTIONS NEW POINT
GLASTICITY RATIO Of Y
-
:
.
⑧
- 1 .
:
PROPORTIONATE O MULTIPLIED BY 100
-
100s CANCEL
·
UNITS-FREE MEASURE
I IN
-
&
:
.
EACH VARIABLE IS INDEPENDENT OF UNITS IN WHICH VARIABLE IS MEASURED
-
RATIO OF TWO PERCENTAGES :
No . WITHOUT UNITS
·
MINUS SIGN +ELASTICITY
WHEN PRICE Of GOOD RISES, QUANTITY DEMANDED A
-
Ive W PRICE DEMANDED PRICE GLASTICITY OF DEMAND IS
-
IN : -
Ve O IN QUANTITY : - Ve
-
BUT MAGNITUDE/ ABSOLUTE VALU Of PED THAT INDICATES HOW RESPONSIVE QUANTITY DEMANDED IS :.. Use
MAGNITUDE OF ELASTICITY + IGNORE MINUS SIGN
INELASTIC +ELASTIC DEMAND
·
If QUANTITY DEMANDED REMAINS CONSTANT WHEN PRICE S THEN PED =
O+ GOOD IS SAID TO HAVE PERFECTLY
INELASTIC DEMAND PED =
0
24 =
INSULIN
·
% U IN QUANTITY DEMANDED
. : 1 . O INPRICE THEN PED :
1 +
GOOD IS SAID TO HAVE UNIT ELASTIC DEMAND
·
EG . NECESSITIES LIKE BREAD PtD = 1
· 5 PERFECTLY INELASTIC DEMAND IS GENERAL CASE %U IN Q IS LESS THAN 1 0
UNIT ELASTIC DEMAND IN Which .
INP :: PED OLPEDL1 + GOOD IS SAID TO HAVE INELASTIC DEMAND
·
If QUANTITY DEMANDED O BY INFINETLY LARGE 1 .
IN RESPONSE TO SMALL PRICE O THEN PED IS 20 + G00D IS
SAID TO UAVE PERFECTLY GLASTIC DEMAND PED = D
·
- UNIT ELASTIC DEMAND + PERFECTLY ELASTIC DEMAND IS GENERAL CASE IN WHICH % . QD EXCEEDS 1 IP . ::
PED> 1 + GOOD IS SAID TO HAVE ELASTIC DEMAND
·
EG .
AUTOMOBILES FURNITURE
CERFECTLY
&
ELASTICITY = 0 GLASTICITY = 1 ELASTICITY = &
N, LASTIC
x
NELASTI C
PERFECTLY INELASTIC DEMAND UNIT ELASTIC DEMAND PERFECTLY GLASTIC DEMAND
, ·
FACTORS THAT INFLUENCE ELASTICITY Of DEMAND
CLOSENESS Of SUBSTITUTES
-
·
CLOSER SUBSTITUTES FOR A GOOD :
MORE GLASTIC DEMAND FOR It
·
NECESSITIES HAVE POOR SUBSTITUTES : GENERALLY INELASTIC DEMAND
·LUXURIES HAVE MANY SUBSTITUTES : GENERALLY ELASTIC DEMAND
PROPORTION OF INCOME SPENT ON GOOD
-
·
PROPORTION OF INCOME SPENT ON GOOD THE MORE ELASTIC IS DEMAND FOR IT OTHER THINGS REMAINING
,
SAME
-
TIME ELAPSED SINCE PRICE &
LONGER TIME GLAPSED SINCE PRICE CHANGE THE MORE GLASTIC IS DEMAND
·
·
ELASTICITY ALONG LINEAR DEMAND CURUE
NOT SAME AS SLOPE CONSTANT SLOPE CAN HAVE VARYING ELASTICITY
-
::
: USE FORMULA TO
-
CALCULATE
25
i 20 8 LASTICITY 4 =
ELASTIC
s
⑧
ELASTICITY = 1
⑧
18 ⑧
INELASTIC
: S ⑧ ELASTICITY :
I
⑧
O
10 2030 48 SO QUANTITY (PIZZAS PER HOURS
·
TOTAL REVENUE + ELASTICITY
·
If PRICE CUT & TOTAL REVENUE, DEMAND IS ELASTIC
TOTAL REVENUE FROM SALE Of GOOD QXP
-
:
·
If PRICE CUT ↓ TOTAL REVENUE, DEMAND IS INELASTIC
·
If PRICE (UT LEAVES TOTAL REVENUE UNCHANGED DEMAND IS
UNIT GLASTK
WHEN PO TOTAL REVENUE
-
↓ IN TOTAL
-
REVENUE DEPENDS ON ELASTICITY Of DEMAND
If DEMAND GLASTIC : 1 % PRICE CUTd QUANTITY SOLD BY MORE THAN 11... TOTAL REVENUE
If DEMAND INELASTIC : 1 % PRICE LUT QUANTITY SOLD BY LESS THAN 1 %:. TOTAL REVENUE A
If DEMAND UNIT ELASTIC :: 14 .
PRICE CUT& QUANTIT SOLD BY 1 %:: TOTAL REVENUE DOESN'
-
TOTAL REVENUE TEST :
METHOD Of ESTIMATING PRICE ELASTICITY Of DEMAND BY OBSERVING IN TOTAL REVENUE
THAT RESULTS FROM & IN PRICE ,
WHEN ALL OTHER INFLUENCES ON QUANTITY SOLD REMAIN SAME
25
i 20 GLASTIC DEMAND 312 50
,
MAXIMUM TOTAL
...........
!
REVENUE
s 18
⑧
UNIT ELASTIC PRICE CUT
& TOTAL
REVENUE
· PRICE CUT
.
-
↓ TOTAL
REVENUE
: INELASTIC -
DEMAND
S /
O
10 20 30 40 SO QUANTITY (PIZZAS PER HOURS
is QUANTITY (PIZZAS PER HOURS
·
INCOME ELASTICITY Of DEMAND
A MEASURE OF RESPONSIVENESS Of DEMAND FOR GOOD SERVICE TO A U IN INCOME
-
OTHER THINGS REMAINING
,
THE SAME
-
INDICATES BY HOW MUCH DEMAND CURVE SHIFTS AT GIVEN PRICE
-
INCOME GLASTICITY Of DEMAND = 1 .
QD
Y U INCOME
.
/-ve
~
CAN B +Ve
-
FALLS INTO 3 RANGES
> tre + GREATER THAN 1 NORMAL GOOD + INCOME ELASTIC
:
Stve + LESS THAN 1
:
NORMAL GOOD +
INCOME INELASTIC
Ve INFERIOR GOOD
- :
-
INCOME ELASTIC DEMAND
·
IN QUANTITY DEMANDED EXCEEDs y 4 IN INCOME .
· If DEMAND FOR GOOD : INCOME ELASTIC THEN Y . INCOME SPENT ON THAT GOOD AS INCOME &
Macroeconomics Summaries
Chapters 4-8
DISCLAIMER:
These summaries are prepared with the intent to closely align with the content of the specified textbook. Full credit and acknowledgment are given to the authors and publishers of the
original textbook for the material on which these summaries are based. All images are taken directly from:
Parkin, M. et al. (2020) Economics: Global and Southern African perspectives. 3rd edn. Cape Town, Western Cape: Pearson South Africa.
While every effort has been made to ensure accuracy, the author of these summaries cannot guarantee that the information contained herein is entirely free from errors or omissions. As
such, no liability is accepted for any inaccuracies, errors, or any resultant consequences arising from the use of this material.
Users are encouraged to refer to the original textbook for comprehensive understanding and to verify any information. Any reliance you place on the content of these summaries is
strictly at your own risk.
Be advised that the distribution of these notes via any platform, including but not limited to email, WhatsApp, AirDrop, or any other digital means, leaves an identifiable trail.
Unauthorized distribution or reproduction of these materials may be considered a violation of plagiarism and copyright laws in South Africa. Perpetrators found involved in such actions
are liable to be prosecuted under the relevant legal provisions. Exercise caution and respect intellectual property rights.
Unauthorised dissemination/distribution of this document is strictly prohibited.
By downloading this document, the purchaser acknowledges and agrees to the following terms:
The purchaser accepts full responsibility to refrain from distributing, sharing, or reproducing this document, in whole or in part, without the express written consent of the author. Any
unauthorized distribution is strictly prohibited.
Should the purchaser be found distributing or enabling the distribution of this document, they acknowledge that they may be subject to legal action. The author reserves the right to take
legal recourse, including but not limited to initiating court proceedings, against any individual or entity found in violation of these terms.
Your download and use of this document indicate your acceptance of these terms and your understanding of the potential legal consequences of non-compliance.
, CHAPTER L easily
PRICE ELASTICITY Of DEMAND
A UNITS-FREE MEASURE OF RESPONSIVENESS OF THE QUANTITY DEMANDED Of A GOOD TO A CHANGE
Price whew all other everses or awa blaws Rema the same
IN ITS
·
CALCULATED BY USING FORMULA : O IN QUANTITY DEMANDED EXPRESSED AS I . OF AVERAGE QUANTITY
%. IN PRICE
EXPRESSED AS Y OF AVERAGE PRICE .
·
BY USING AVERAGE PRICE + QUANTITY :.. CALCULATES THE ELASTICITY AT A POINT ON DEMAND CURVE :: MIDWAY BETWEEN
THE ORIGIONAL POINT+ NEW POINT
ELASTICITY Of DEMAND USING POINT ELASTICITY EQUATION :
·
1. P &P
stopt
·
ep
= =
x
180 p ,
+ Pc
x
Pave 2 ·
SLODE = &P
WQ
% Q &Q
·
100 ANSWER ABSOLUTE VALUE
= =
. ·
x
·
MEASURES GLASTICITY AT A DOINT
Qave
·
AVERAGE PRICE + QUANTITY
ORIGIONAL POINT
- vibrio
-
% QD
GIVES MOST PRECISE MEASUREMENT OF ELASTICITY
.
PRICE ELASTICITY OF DEMAND =
I . UP
= Q/Qave
- UP/Pave
AT MIDPOINT BETWEEN ORIGIONAL PRICE + NEW PRICE =2/10
1/20
=4
·
PERCENTAGES + PROPORTIONS NEW POINT
GLASTICITY RATIO Of Y
-
:
.
⑧
- 1 .
:
PROPORTIONATE O MULTIPLIED BY 100
-
100s CANCEL
·
UNITS-FREE MEASURE
I IN
-
&
:
.
EACH VARIABLE IS INDEPENDENT OF UNITS IN WHICH VARIABLE IS MEASURED
-
RATIO OF TWO PERCENTAGES :
No . WITHOUT UNITS
·
MINUS SIGN +ELASTICITY
WHEN PRICE Of GOOD RISES, QUANTITY DEMANDED A
-
Ive W PRICE DEMANDED PRICE GLASTICITY OF DEMAND IS
-
IN : -
Ve O IN QUANTITY : - Ve
-
BUT MAGNITUDE/ ABSOLUTE VALU Of PED THAT INDICATES HOW RESPONSIVE QUANTITY DEMANDED IS :.. Use
MAGNITUDE OF ELASTICITY + IGNORE MINUS SIGN
INELASTIC +ELASTIC DEMAND
·
If QUANTITY DEMANDED REMAINS CONSTANT WHEN PRICE S THEN PED =
O+ GOOD IS SAID TO HAVE PERFECTLY
INELASTIC DEMAND PED =
0
24 =
INSULIN
·
% U IN QUANTITY DEMANDED
. : 1 . O INPRICE THEN PED :
1 +
GOOD IS SAID TO HAVE UNIT ELASTIC DEMAND
·
EG . NECESSITIES LIKE BREAD PtD = 1
· 5 PERFECTLY INELASTIC DEMAND IS GENERAL CASE %U IN Q IS LESS THAN 1 0
UNIT ELASTIC DEMAND IN Which .
INP :: PED OLPEDL1 + GOOD IS SAID TO HAVE INELASTIC DEMAND
·
If QUANTITY DEMANDED O BY INFINETLY LARGE 1 .
IN RESPONSE TO SMALL PRICE O THEN PED IS 20 + G00D IS
SAID TO UAVE PERFECTLY GLASTIC DEMAND PED = D
·
- UNIT ELASTIC DEMAND + PERFECTLY ELASTIC DEMAND IS GENERAL CASE IN WHICH % . QD EXCEEDS 1 IP . ::
PED> 1 + GOOD IS SAID TO HAVE ELASTIC DEMAND
·
EG .
AUTOMOBILES FURNITURE
CERFECTLY
&
ELASTICITY = 0 GLASTICITY = 1 ELASTICITY = &
N, LASTIC
x
NELASTI C
PERFECTLY INELASTIC DEMAND UNIT ELASTIC DEMAND PERFECTLY GLASTIC DEMAND
, ·
FACTORS THAT INFLUENCE ELASTICITY Of DEMAND
CLOSENESS Of SUBSTITUTES
-
·
CLOSER SUBSTITUTES FOR A GOOD :
MORE GLASTIC DEMAND FOR It
·
NECESSITIES HAVE POOR SUBSTITUTES : GENERALLY INELASTIC DEMAND
·LUXURIES HAVE MANY SUBSTITUTES : GENERALLY ELASTIC DEMAND
PROPORTION OF INCOME SPENT ON GOOD
-
·
PROPORTION OF INCOME SPENT ON GOOD THE MORE ELASTIC IS DEMAND FOR IT OTHER THINGS REMAINING
,
SAME
-
TIME ELAPSED SINCE PRICE &
LONGER TIME GLAPSED SINCE PRICE CHANGE THE MORE GLASTIC IS DEMAND
·
·
ELASTICITY ALONG LINEAR DEMAND CURUE
NOT SAME AS SLOPE CONSTANT SLOPE CAN HAVE VARYING ELASTICITY
-
::
: USE FORMULA TO
-
CALCULATE
25
i 20 8 LASTICITY 4 =
ELASTIC
s
⑧
ELASTICITY = 1
⑧
18 ⑧
INELASTIC
: S ⑧ ELASTICITY :
I
⑧
O
10 2030 48 SO QUANTITY (PIZZAS PER HOURS
·
TOTAL REVENUE + ELASTICITY
·
If PRICE CUT & TOTAL REVENUE, DEMAND IS ELASTIC
TOTAL REVENUE FROM SALE Of GOOD QXP
-
:
·
If PRICE CUT ↓ TOTAL REVENUE, DEMAND IS INELASTIC
·
If PRICE (UT LEAVES TOTAL REVENUE UNCHANGED DEMAND IS
UNIT GLASTK
WHEN PO TOTAL REVENUE
-
↓ IN TOTAL
-
REVENUE DEPENDS ON ELASTICITY Of DEMAND
If DEMAND GLASTIC : 1 % PRICE CUTd QUANTITY SOLD BY MORE THAN 11... TOTAL REVENUE
If DEMAND INELASTIC : 1 % PRICE LUT QUANTITY SOLD BY LESS THAN 1 %:. TOTAL REVENUE A
If DEMAND UNIT ELASTIC :: 14 .
PRICE CUT& QUANTIT SOLD BY 1 %:: TOTAL REVENUE DOESN'
-
TOTAL REVENUE TEST :
METHOD Of ESTIMATING PRICE ELASTICITY Of DEMAND BY OBSERVING IN TOTAL REVENUE
THAT RESULTS FROM & IN PRICE ,
WHEN ALL OTHER INFLUENCES ON QUANTITY SOLD REMAIN SAME
25
i 20 GLASTIC DEMAND 312 50
,
MAXIMUM TOTAL
...........
!
REVENUE
s 18
⑧
UNIT ELASTIC PRICE CUT
& TOTAL
REVENUE
· PRICE CUT
.
-
↓ TOTAL
REVENUE
: INELASTIC -
DEMAND
S /
O
10 20 30 40 SO QUANTITY (PIZZAS PER HOURS
is QUANTITY (PIZZAS PER HOURS
·
INCOME ELASTICITY Of DEMAND
A MEASURE OF RESPONSIVENESS Of DEMAND FOR GOOD SERVICE TO A U IN INCOME
-
OTHER THINGS REMAINING
,
THE SAME
-
INDICATES BY HOW MUCH DEMAND CURVE SHIFTS AT GIVEN PRICE
-
INCOME GLASTICITY Of DEMAND = 1 .
QD
Y U INCOME
.
/-ve
~
CAN B +Ve
-
FALLS INTO 3 RANGES
> tre + GREATER THAN 1 NORMAL GOOD + INCOME ELASTIC
:
Stve + LESS THAN 1
:
NORMAL GOOD +
INCOME INELASTIC
Ve INFERIOR GOOD
- :
-
INCOME ELASTIC DEMAND
·
IN QUANTITY DEMANDED EXCEEDs y 4 IN INCOME .
· If DEMAND FOR GOOD : INCOME ELASTIC THEN Y . INCOME SPENT ON THAT GOOD AS INCOME &
