Naked Economics Chapter 4

This week in chapter six of the book, Economics, written by McConnell, Brue, and Flynn, I have learned about price elasticity of demand and supply, cross elasticity, total revenue, and income elasticity of demand. Through this week I believe the most important concepts are elasticity of supply and demand. Elasticity of demand is the sensitivity of a price change of a product. Elasticity of demand can be influenced by substitutability, proportion of income, luxuries versus necessities, and time. Price elasticity of supply is the responsiveness of producers to a price change in a product. Price elasticity of supply can have multiple effects on a market based on the amount of time needed to react to a price change. There are 3 time categories to describe how mush the

The short run is when a period too short to change capacity of what is produced, but long enough for producers to intensify or slow the amount produced based on the market. This causes for the amount produced to change causing for a slanted supply line with the demand higher or lower on the supply line. The graph shows that the short run is more elastic that the immediate period. The long run is when there is enough time to the capacity of what is being produced based on the market change. This cause the supply line on the graph to be more slanted and the equilibrium point is higher on the slant or lower based on the supply change. Therefore, long run is more elastic that the other two-time periods. Price elasticity of supply and demand is the most essential because both concepts can relate to real life scenarios. Economics uses the example of excises taxes as a practical example of price elasticity of demand. (Pg.142). Governments tend to tax inelastic goods because the tax on them won’t lower the amount of that good