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Econ Videos 79 videos

Econ: What is a Production Possibilities Curve?
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What is a Production Possibilities Curve? The Production Possibilities Frontier Curve (PPF) is a statistical graphic curve that depicts the compari...

Econ: What are Income and Substitution Effects?
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What are Income and Substitution Effects? Income effects reflects the increases or decreases in total consumption of goods and services in proporti...

Econ: How Do Companies Add Value?
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How Do Companies Add Value? Companies add value by improving the client or customer experience. This can be achieved by offering better quality ser...

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Econ: What are Elasticities of Supply and Demand? 7 Views


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Transcript

00:00

and finance Allah shmoop What are elasticity Sze of supply

00:05

and demand All right people when we're talking elasticity and

00:11

economics were talking about how responsive one thing is to

00:14

something else Like what if your brother snapped your arm

00:17

with rubber band Yeah if you reacted wildly While you're

00:20

very responsive to the change which means your elastic to

00:24

being rubber band snapped if you remain stoic as a

00:27

monk unmoving and un reactive you're in the elastic to

00:31

being rubber band snapped with the elasticity of supply and

00:34

demand were measuring the change in quantity as a response

00:37

to a change in price Will the price elasticity of

00:40

demand asks if price changes by n percent How does

00:45

the quantity demanded change in the technical sense Price elasticity

00:49

of demand is the percent change in quantity demanded divided

00:53

by the percent change in price OK well even in

00:57

the Monkey Kingdom we can measure the elasticity of demand

01:00

For instance there was a time when a monkey could

01:03

buy one banana for three back scratches a high price

01:07

But now a monkey can get one banana for the

01:09

price of one back scratch much much cheaper than before

01:13

in fact well it's a third the price since the

01:16

price of bananas changed well How did the quantity of

01:19

bananas demanded in the Monkey Kingdom change well since bananas

01:22

or cheaper now than they were before And since monkeys

01:25

loves me some bananas will The demand for bananas has

01:28

increased which means the demand for bananas moves down that

01:31

the band curve to a higher quantity and a lower

01:34

price like write down here But how many more bananas

01:37

were demanded Exactly The world wants to know if the

01:40

quantity of bananas demanded didn't increase that much Even with

01:44

such a drastic price reduction well then the monkeys would

01:46

have any elastic demand for bananas on the graph That's

01:50

when the price change looks a lot bigger than the

01:52

quantity change like when price elasticity of demand is less

01:55

than one while the good is considered to have any

01:58

elastic demand If instead the monkeys went bananas for bananas

02:01

demanding many many many more bananas in response to the

02:04

price drop well then it would be considered a relatively

02:07

elastic demand when price elasticity of demand is greater than

02:10

one Well then the goods considered to have elastic demand

02:14

well if we think back to the elasticity of demand

02:16

equation this makes sense like how much quantity changed is

02:19

on top and how much price changed is on the

02:22

bottom right there When quantity changes more than price our

02:25

equation is top heavy which means it'LL be larger than

02:28

one when quantity changes less than price Well it goes

02:31

the other way right Okay when consumers will buy a

02:33

lot more of something if the price drops or a

02:35

lot less of something when the price rises that good

02:38

has elastic demand It's stretchy when consumers keep buying a

02:42

similar amount of the good Even if the price changes

02:44

that good is in the elastic Let's take a look

02:47

at elasticity of supply from the banana supply Your perspective

02:51

The price elasticity of supply asks if price changes by

02:54

X percent How does the quantity supplied change Well the

02:58

price elasticity of supplies The percent change in quantity supply

03:01

divided by the percent change in price the higher the

03:04

price that banana suppliers can sell their bananas for well

03:07

the more bananas they'LL want to sell right The lower

03:09

the price the bananas with less They'LL want to sell

03:11

if we take our same case where banana prices decreased

03:14

by two thirds were only a third of the original

03:17

price Well how does that affect quantity of banana supplied

03:19

First of all why would the price of bananas decreased

03:22

Well if producers are priced takers it means their price

03:25

depends on consumer demand for the good In this case

03:28

a drop in the demand for bananas by consumers would

03:31

lead to a drop in prices So how does it

03:34

drop in consumer demand Change the quantity supplied Well if

03:38

the banana producer were elastic it means there's a large

03:41

drop in banana supplied compared to the price drop Remember

03:44

the more elastic something is the more drastic the response

03:48

as with elasticity of demand a goods supplies considered elastic

03:52

if the elasticity is bigger than one Well if banana

03:55

producers were relatively in elastic to a drop in price

03:58

than the quantity shrunk a small amount compared to the

04:01

price drop in elastic supply means the price elasticity of

04:04

the good is less than one Just as with any

04:07

elastic command Okay so you might be wondering why some

04:10

goods are more elastic imply Some are less elastic The

04:13

price elasticity of demand can change when prices change when

04:17

income changes and when substitute goods are available right The

04:22

effect of crisis and income changes are similar since they

04:25

both change your buying power in the market Right Substitute

04:30

goods are well a bit different say the price of

04:32

bananas dropped by two thirds because the substitute good became

04:35

available on the market Yes plantains were looking atyou Plantains

04:40

are no bananas but they're similar enough to be cutting

04:43

into the banana market when substitute goods cut into another

04:47

goods market well that goods demand usually drops causing a

04:50

price drop So for consumers it's a change in how

04:53

much cash is in your pocket and your alternative options

04:55

on the market So what about four suppliers Well the

04:58

price elasticity of supplies largely dependent on their production constraints

05:02

In other words how much control do suppliers have in

05:05

raising supply Because well sometimes they don't too much For

05:10

instance if there was a hurricane that wiped out a

05:12

slice of the usual supply of bananas banana supply will

05:15

be lower There's nothing suppliers can really do about it

05:17

when supply can't be increased in response to an increase

05:20

in demand Well the supply elasticity is in elastic Another

05:24

good example of an elastic supply is parking there just

05:27

some days when there's high demand for parking Yes supply

05:30

does not rise to meet that demand You can't just

05:33

get out your asphalt paving truck and throw down and

05:36

new spots or a thousand new spots to accommodate that

05:38

line of Tesla's forming at the garage entrance there Both

05:41

of these cases are examples of limited production capacity Other

05:45

factors that can affect the price elasticity of supply Well

05:48

firm stockpiling whether it's easy for firms to switch up

05:51

their production process and how long it takes firms to

05:54

produce new goods There wouldn't be a banana shortage if

05:56

we could get bananas to grow like bamboo But way

05:59

can't like Monkeys were sensitive to change price change That

06:03

is whether you're a consumer or a producer You have

06:05

immeasurable elasticity Deep down inside of you telling you how

06:09

to respond to price changes All you have to do

06:11

is put your banana down in Just listen for a

06:14

second really

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