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.
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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 - the effects of smth on smth - -
hypothetical numbers ,
the relation between
quantity demanded
to plot the demand curve
for given price ()
to measure the responsiveness of smth to smth , ()
obvious measure ,
the slope of the curve
the downward slope
ticket sales per game
trivial (syn. minor, slight)
a negligible effect ,
to examine smth ,
the percentage change
unit-free (<? )
this suggests (syn. to imply)
similarly
to take account of (syn. to take into account, consideration) ,
presumably (syn. probably) ,
extra sale
to number
to reach the definition
the price elasticity of demand
to divide by
shortly .
cross price elasticity
income elasticity
the (own) price elasticity
the most frequently used
as it has been defined above ,
to express smth -
to obtain (syn. to get) , e.g. to obtain a diploma
a positive percentage change ()
a negative percentage change ()
movements along a demand curve
for further brevity
to omit the minus sign
it's easier to say
unless there is an explicit warning to the contrary
to add ,
adding, addition ,
addendum ,
to imply (syn. to suggest) ,
a rare but not unknown phenomenon ,
Assignments
I. Suggest the Russian equivalents
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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
; ...; ; , ; 1 ; ; ; ...; () ; ()
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. () () . .
2. - .
3. , .
4. ( ) ( ), ( ).
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PRICE, INCOME AND DEMAND (, )
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.
