Chapter 5: Price Elasticity of Demand and Supply

LEARNING OBJECTIVES
The steps to achieve the learning objectives include reading sections from your textbook and the
causation chain game, which is available directly on the Tucker web site. The steps also include
references to Ask the Instructor Video Clips, the Graphing Workshop available through
CourseMate on the Tucker website.
#1 - Calculate the price elasticity of a demand curve using the mid-points formula and relate price
elasticity to the total revenue curve and determinants of price elasticity of demand.
Step 1

Read the sections in your textbook titled Price Elasticity of Demand and Price
Elasticity of Demand Variations along a Demand Curve. After reading these sections,
you should be able to interpret the elastic, inelastic, unitary elastic, perfectly elastic, and
perfectly inelastic demand curve concepts and their relationship to total revenue.

Step 2

Listen to the Ask the Instructor Video Clip titled Is Price Elasticity of Demand the
Same Thing as Slope? You will learn why price elasticity of demand is not the same as
the slope.

The Result

By following the steps above, you have learned that a straight line has three segments,
including the elastic, unitary elastic, and inelastic ranges. Each of these ranges is related
to the total revenue curve.

#2 - Calculate and interpret income elasticity of demand, cross-elasticity of demand, price elasticity
of supply, and explain who pays the burden of a tax.
Step 1

Read the sections in your textbook titled Other Elasticity Measure and Price
Elasticity. After reading these sections, you should be able to determine whether a
product is normal or inferior.

Step 2

Read the Graphing Workshop Grasp It! exercise titled Tax Incidence. This exercise
uses a slider bar to demonstrate how various levels of a tax shift the relative burden
between buyers and sellers of a product.

Step 3

Create a new graph at the Graphing Workshop Try It! exercise titled Tax Incidence.
This exercise illustrates how a tax is divided between buyers and sellers in the market for
restaurant meals.

Step 4

Play the Causation Chains Game titled The Tax Incidence of a Tax on Gasoline.

Step 5

Listen to the Ask the Instructor Video Clip titled Why Are Taxes on Cigarettes so
High? You will learn the relationship between price elasticity of demand and taxation
on cigarettes.

The Result

By following the steps above, you have learned that income elasticity of demand
determines whether a good is normal or inferior and cross elasticity of demand
relates to whether a good is a substitute or a complement. Also, you will be able to
interpret the elastic, inelastic, unitary elastic, perfectly elastic, and perfectly inelastic
supply curve

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