{"id":177,"date":"2020-03-24T04:51:29","date_gmt":"2020-03-24T04:51:29","guid":{"rendered":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/chapter\/why-it-matters-elasticity\/"},"modified":"2023-05-22T19:20:48","modified_gmt":"2023-05-22T19:20:48","slug":"why-it-matters-elasticity","status":"publish","type":"chapter","link":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/chapter\/why-it-matters-elasticity\/","title":{"raw":"Why It Matters: Elasticity","rendered":"Why It Matters: Elasticity"},"content":{"raw":"<h2>Why measure how changes in price, income, or other factors&nbsp;affect the behavior of buyers and sellers?<\/h2>\nImagine going to your favorite coffee shop and having the waiter inform you that the pricing has changed. Instead of $3 for a cup of coffee, you will now be charged $2 for coffee, $1 for creamer, and $1 for your choice of sweetener. If you pay your usual $3 for a cup of coffee, you must choose between creamer and sweetener. If you want both, you now face an extra charge of $1. Sound absurd? Well, that's the situation Netflix customers found themselves in\u2014facing a 60 percent price hike to retain the same service.\n\n[caption id=\"attachment_6519\" align=\"aligncenter\" width=\"500\"]<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1511\/2016\/06\/27175051\/2655128664_302f3a5b47_b.jpg\" rel=\"attachment wp-att-6519\"><img class=\"wp-image-6519\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/343\/2016\/07\/20205942\/2655128664_302f3a5b47_b-1024x683.jpg\" alt=\"This is a photograph of Netflix packaging.\" width=\"500\" height=\"333\"><\/a> <strong>Netflix On-Demand Media<\/strong>. Netflix, Inc. is an American provider of on-demand Internet streaming media to many countries around the world, including the United States, and of flat rate DVD-by-mail in the United States.[\/caption]\n\nIn early 2011, Netflix consumers paid about $10 a month for a package consisting of streaming video and DVD rentals. In July 2011, the company announced a packaging change. Customers wishing to retain both streaming video and DVD rental would be charged $15.98 per month, a price increase of about 60 percent. How would customers of the fourteen-year-old firm react? Would they abandon Netflix? Would the ease of access to other venues make a difference in how consumers responded to the Netflix price change? In this module, the answers to these questions\u2014about the change in quantity with respect to a change in price\u2014will be explored through a concept economists call <em>elasticity<\/em>.\n\nElasticity measures the behavioral response of economic agents in a given situation.&nbsp;Here are some examples:\n<ul><li>If a business raises its prices, will that have a large or small impact on demand?<\/li>\n\t<li>If you get a pay raise, how much more will you spend on food, clothing or entertainment?<\/li>\n\t<li>If hot dogs go on sale at the grocery store, how much additional mustard will consumers purchase?<\/li>\n\t<li>If the local Italian restaurant puts their pizza on sale, will the additional number of pizzas sold offset the discount on each item? &nbsp;In other words, will their sales revenues for pizza go up or down?<\/li>\n<\/ul>\nThese are important real-world questions that we'll study in this module.\n\n<span style=\"line-height: 1.5;\">Also,&nbsp;before we get into the details: It can be easy to get hung up on&nbsp;the math of elasticity calculations. Learning to do these&nbsp;calculations is an important part of applying the elasticity&nbsp;principle, but the math will seem more intuitive if you master&nbsp;concept first: Understanding what elasticity means in a particular context will help you see what you're trying to calculate.&nbsp;<\/span>\n<h3>Learning Outcomes<\/h3>\n<ul><li>Explain&nbsp;the concept of elasticity<\/li>\n\t<li>Explain the price elasticity of demand and price elasticity of supply, and compute both using the midpoint method<\/li>\n\t<li>Explain and calculate other elasticities using common economic variables<\/li>\n\t<li>Explain the relationship between a firm's price elasticity of demand and total revenue<\/li>\n<\/ul>","rendered":"<h2>Why measure how changes in price, income, or other factors&nbsp;affect the behavior of buyers and sellers?<\/h2>\n<p>Imagine going to your favorite coffee shop and having the waiter inform you that the pricing has changed. Instead of $3 for a cup of coffee, you will now be charged $2 for coffee, $1 for creamer, and $1 for your choice of sweetener. If you pay your usual $3 for a cup of coffee, you must choose between creamer and sweetener. If you want both, you now face an extra charge of $1. Sound absurd? Well, that&#8217;s the situation Netflix customers found themselves in\u2014facing a 60 percent price hike to retain the same service.<\/p>\n<figure id=\"attachment_6519\" aria-describedby=\"caption-attachment-6519\" style=\"width: 500px\" class=\"wp-caption aligncenter\"><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1511\/2016\/06\/27175051\/2655128664_302f3a5b47_b.jpg\" rel=\"attachment wp-att-6519\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-6519\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/343\/2016\/07\/20205942\/2655128664_302f3a5b47_b-1024x683.jpg\" alt=\"This is a photograph of Netflix packaging.\" width=\"500\" height=\"333\" \/><\/a><figcaption id=\"caption-attachment-6519\" class=\"wp-caption-text\"><strong>Netflix On-Demand Media<\/strong>. Netflix, Inc. is an American provider of on-demand Internet streaming media to many countries around the world, including the United States, and of flat rate DVD-by-mail in the United States.<\/figcaption><\/figure>\n<p>In early 2011, Netflix consumers paid about $10 a month for a package consisting of streaming video and DVD rentals. In July 2011, the company announced a packaging change. Customers wishing to retain both streaming video and DVD rental would be charged $15.98 per month, a price increase of about 60 percent. How would customers of the fourteen-year-old firm react? Would they abandon Netflix? Would the ease of access to other venues make a difference in how consumers responded to the Netflix price change? In this module, the answers to these questions\u2014about the change in quantity with respect to a change in price\u2014will be explored through a concept economists call <em>elasticity<\/em>.<\/p>\n<p>Elasticity measures the behavioral response of economic agents in a given situation.&nbsp;Here are some examples:<\/p>\n<ul>\n<li>If a business raises its prices, will that have a large or small impact on demand?<\/li>\n<li>If you get a pay raise, how much more will you spend on food, clothing or entertainment?<\/li>\n<li>If hot dogs go on sale at the grocery store, how much additional mustard will consumers purchase?<\/li>\n<li>If the local Italian restaurant puts their pizza on sale, will the additional number of pizzas sold offset the discount on each item? &nbsp;In other words, will their sales revenues for pizza go up or down?<\/li>\n<\/ul>\n<p>These are important real-world questions that we&#8217;ll study in this module.<\/p>\n<p><span style=\"line-height: 1.5;\">Also,&nbsp;before we get into the details: It can be easy to get hung up on&nbsp;the math of elasticity calculations. Learning to do these&nbsp;calculations is an important part of applying the elasticity&nbsp;principle, but the math will seem more intuitive if you master&nbsp;concept first: Understanding what elasticity means in a particular context will help you see what you&#8217;re trying to calculate.&nbsp;<\/span><\/p>\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li>Explain&nbsp;the concept of elasticity<\/li>\n<li>Explain the price elasticity of demand and price elasticity of supply, and compute both using the midpoint method<\/li>\n<li>Explain and calculate other elasticities using common economic variables<\/li>\n<li>Explain the relationship between a firm&#8217;s price elasticity of demand and total revenue<\/li>\n<\/ul>\n","protected":false},"author":32,"menu_order":1,"template":"","meta":{"pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-177","chapter","type-chapter","status-publish","hentry"],"part":176,"_links":{"self":[{"href":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/wp-json\/pressbooks\/v2\/chapters\/177","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/wp-json\/wp\/v2\/users\/32"}],"version-history":[{"count":1,"href":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/wp-json\/pressbooks\/v2\/chapters\/177\/revisions"}],"predecessor-version":[{"id":178,"href":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/wp-json\/pressbooks\/v2\/chapters\/177\/revisions\/178"}],"part":[{"href":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/wp-json\/pressbooks\/v2\/parts\/176"}],"metadata":[{"href":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/wp-json\/pressbooks\/v2\/chapters\/177\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/wp-json\/wp\/v2\/media?parent=177"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/wp-json\/pressbooks\/v2\/chapter-type?post=177"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/wp-json\/wp\/v2\/contributor?post=177"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/wp-json\/wp\/v2\/license?post=177"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}