微观经济学第六版课后答案-微观经济学-英文原版-CH02PINDYCK课件

Chapter

2©2005

Pearson

Education,Inc.Chapter

2The

Basics

of

Supplyand

DemandIntroduction©2005

Pearson

Education,Inc.Chapter

22What

are

supply

anddemand?What

is

the

marketmechanism?What

are

the

effects

of

changes

in

marketequilibrium?What

are

elasticities

of

supply

anddemand?Topics

to

Be

Discussed©2005

Pearson

Education,Inc.Chapter

23How

do

short-run

and

long-run

elasticitiesdiffer?How

do

we

understand

and

predict

theeffects

of

changing

marketconditions?What

are

the

effects

of

governmentintervention

–

price

controls?Supply

and

Demand©2005

Pearson

Education,Inc.Chapter

24Supply

and

demand

analysis

can:Help

us

understand

and

predict

howrealworld

economic

conditions

affect

marketprice

and

productionAnalyze

the

impact

of

government

pricecontrols,

minimum

wages,

price

supports,and

production

incentives

on

the

economyDetermine

how

taxes,

subsidies,

tariffsand

import

quotas

affect

consumers

andproducersSupply

and

DemandThe

Supply

CurveThe

relationship

between

the

quantity

of

agood

that

producers

are

willing

to

sell

and

theprice

of

the

goodMeasures

quantity

on

the

x-axis

and

price

onthe

y-axis©2005

Pearson

Education,Inc.Chapter

25The

SupplyCurveSThe

supply

curve

slopesupward,

demonstrating

thatat

higher

prices

firmswill

increase

outputThe

Supply

Curve,Graphically

DepictedQuantityPrice($

per

unit)P1Q1P2©2005

Pearson

Education,Inc.Chapter

26Q2The

SupplyCurve©2005

Pearson

Education,Inc.Chapter

27Other

Variables

Affecting

SupplyCosts

of

ProductionLaborCapitalRaw

MaterialsLower

costs

of

production

allow

a

firm

toproduce

more

at

each

price

and

vice

versaChange

in

SupplyThe

cost

of

rawmaterials

fallsProduced

Q1

atP1and

Q0

at

P2Now

produce

Q2

at

P1and

Q1

at

P2Supply

curve

shiftsright

to

S’PSP1P2S’Q0

Q1

Q2

Q©2005

Pearson

Education,Inc.Chapter

28The

SupplyCurve©2005

Pearson

Education,Inc.Chapter

29Change

in

Quantity

SuppliedMovement

along

the

curve

caused

by

achange

in

priceChange

in

SupplyShift

of

the

curve

caused

by

a

change

insomething

other

than

the

price

of

the

goodChange

in

costs

of

productionSupply

and

DemandThe

Demand

CurveThe

relationship

between

the

quantity

of

agood

that

consumers

are

willing

to

buy

andthe

price

of

the

goodMeasures

quantity

on

the

x-axis

and

price

onthe

y-axis©2005

Pearson

Education,Inc.Chapter

210The

Demand

CurveDThe

demand

curve

slopesdownward,

demonstratingthat

consumers

are

willingto

buy

more

at

a

lowerpriceas

the

product

becomesrelatively

cheaper.QuantityPrice($

per

unit)P2P1Q1Q2©2005

Pearson

Education,Inc.Chapter

211The

Demand

Curve©2005

Pearson

Education,Inc.Chapter

212Other

Variables

Affecting

DemandIncomeIncreases

in

income

allow

consumers

topurchase

more

at

all

pricesConsumer

TastesPrice

of

Related

GoodsSubstitutesComplementsDPD’Q0

Q1P2P1Q2

QChange

in

Demand©2005

Pearson

Education,Inc.Chapter

213Income

IncreasesPurchased

Q0,

at

P2and

Q1

at

P1Now

purchased

Q1

atP2

andQ2

atP1Same

for

all

pricesDemand

curve

shiftsrightThe

Demand

Curve©2005

Pearson

Education,Inc.Chapter

214Changes

in

quantity

demandedMovements

along

the

demand

curve

causedby

a

change

in

priceChanges

in

demandA

shift

of

the

entire

demand

curve

caused

bysomething

other

than

priceIncomePreferencesThe

MarketMechanism©2005

Pearson

Education,Inc.Chapter

215The

market

mechanism

is

the

tendency

ina

free

market

for

price

to

change

until

themarket

clearsMarkets

clear

when

quantity

demandedequals

quantity

supplied

at

the

prevailingpriceMarket

clearing

price

–

price

atwhichmarketsclearThe

MarketMechanismDSThe

curves

intersect

atequilibrium,

or

market-clearing,

price.Quantity

demandedequals

quantitysupplied

atP0P0Q0Quantity©2005

Pearson

Education,Inc.Chapter

216Price($

per

unit)The

MarketMechanism©2005

Pearson

Education,Inc.Chapter

217InequilibriumThere

is

no

shortage

or

excess

demandThere

is

no

surplus

or

excess

supplyQuantity

supplied

equals

quantity

demandedAnyone

who

wants

to

buy

at

the

current

pricecan

and

all

producers

who

want

to

sell

at

thatpricecanMarket

Surplus1©2005

Pearson

Education,Inc.Chapter

218The

market

price

is

above

equilibriumThere

is

excess

supply

-

surplusDownward

pressure

on

priceQuantity

demanded

increases

and

quantitysupplied

decreasesThe

market

adjusts

until

new

equilibriumisreachedThe

MarketMechanismDSP0Q0At

P1,

price

isabovethemarket

clearingpriceQs

>

QDPrice

falls

to

themarket-clearingpriceMarket

adjuststo

equilibriumP1SurplusQuantityPrice($

per

unit)QSQD©2005

Pearson

Education,Inc.Chapter

219The

MarketMechanism©2005

Pearson

Education,Inc.Chapter

220The

market

price

is

below

equilibrium:There

is

excess

demand

-

shortageUpward

pressure

on

pricesQuantity

demanded

decreases

and

quantitysupplied

increasesThe

market

adjusts

until

the

new

equilibriumisreachedThe

MarketMechanismDSQSQDP2QuantityPrice($

per

unit)At

P2,

price

isbelowthemarketclearing

priceQD

>

QSPrice

risestothe

market-clearing

priceMarket

adjuststo

equilibriumQ3P3Shortage©2005

Pearson

Education,Inc.Chapter

221The

MarketMechanism©2005

Pearson

Education,Inc.Chapter

222Supply

and

demand

interact

to

determinethe

market-clearing

priceWhen

not

in

equilibrium,

the

marketwilladjust

to

alleviate

a

shortage

or

surplusand

return

the

market

toequilibriumMarkets

must

be

competitive

for

themechanism

to

be

efficientChanges

in

Market

Equilibrium©2005

Pearson

Education,Inc.Chapter

223Equilibrium

prices

are

determined

by

therelative

level

of

supply

and

demandChanges

in

supply

and/or

demandwillcause

change

in

the

equilibrium

priceand/or

quantity

in

a

free

marketS’Changes

in

Market

EquilibriumRaw

material

pricesfallS

shifts

to

S’Surplus

at

P1

betweenQ1,

Q2Price

adjusts

toequilibrium

at

P3,

Q3PQSDP1P3Q1Q3Q2©2005

Pearson

Education,Inc.Chapter

224D’SDQ3P3P1Changes

in

Market

EquilibriumIncome

IncreasesDemand

increases

toD’Shortage

at

P1

of

Q1to

Q2Equilibrium

at

P3

andQ3PQQ1Q2©2005

Pearson

Education,Inc.Chapter

225D’S’Changes

in

Market

EquilibriumIncome

increasesand

rawmaterialprices

fallQuantity

increasesIf

the

increase

in

D

isgreater

thantheincrease

in

S

pricealso

increasesPQSP2P1©2005

Pearson

Education,Inc.Chapter

226Q2DQ1Shifts

in

Supply

and

Demand©2005

Pearson

Education,Inc.Chapter

227When

supply

and

demand

changesimultaneously,

the

impact

ontheequilibrium

price

and

quantity

isdetermined

by:The

relative

size

and

direction

of

thechangeThe

shape

of

the

supply

anddemandmodelsThe

Price

of

a

College

Education©2005

Pearson

Education,Inc.Chapter

228The

real

price

of

a

college

education

rose55

percent

from

1970

to

2002Increases

in

costs

of

modern

classroomsand

wages

increased

costs

of

production–

decrease

in

supplyDue

to

a

larger

percentage

of

high

schoolgraduates

attending

college,

demandincreasedMarket

for

a

CollegeEducationQ

(millions

enrolled))P(annual

costin

1970dollars)D1970S1970S2002D2002$3,917Newequilibriumwas

reachedat

$4,573

anda

quantity

of12.3

millionstudents8.6

13.2$2,530©2005

Pearson

Education,Inc.Chapter

229TheLong-RunBehaviorof

Natural

Resource

Prices©2005

Pearson

Education,Inc.Chapter

230Consumption

of

copper

has

increased

abouta

hundredfold

from

1880

through

2002The

long

term

real

price

for

copper

hasremained

relatively

constantIncreased

demand

as

world

economy

grewDecreased

production

costs

increased

supplyS2002D2002D1900S1900S1950D1950Long-RunPathofPrice

and

ConsumptionResource

Market

Equilibrium©2005

Pearson

Education,Inc.Chapter

231QuantityPriceResource

Market©2005

Pearson

Education,Inc.Chapter

232ConclusionDecreases

in

the

costs

of

productionhaveincreased

the

supply

by

more

than

enough

tooffset

the

increase

in

demandElasticities

of

Supply

and

Demand©2005

Pearson

Education,Inc.Chapter

233Not

only

are

we

concerned

with

what

directionprice

and

quantity

will

move

when

the

marketchanges,

but

we

are

concerned

about

howmuch

theychangeElasticity

gives

a

way

to

measure

by

how

mucha

variable

will

change

with

the

change

inanother

variableSpecifically,

it

gives

the

percentage

changeinone

variable

resulting

from

a

onepercentchange

in

anotherPrice

Elasticity

of

DemandMeasures

the

sensitivity

of

quantitydemanded

to

price

changesIt

measures

the

percentage

change

in

thequantity

demanded

of

a

good

that

resultsfrom

a

one

percent

change

inprice©2005

Pearson

Education,Inc.Chapter

234Price

Elasticity

of

DemandThe

percentage

change

in

a

variable

isthe

absolute

change

in

the

variabledivided

by

the

original

level

of

thevariableTherefore,

elasticity

can

also

be

writtenas:©2005

Pearson

Education,Inc.Chapter

235Price

Elasticity

of

Demand©2005

Pearson

Education,Inc.Chapter

236Usually

a

negative

numberAs

price

increases,

quantity

decreasesAs

price

decreases,

quantity

increasesWhen

|EP|

>

1,

the

good

is

priceelastic|%

Q|

>|%

P|When

|EP|

<

1,

the

good

is

priceinelastic|%

Q|

<

|%

P|Price

Elasticity

of

Demand©2005

Pearson

Education,Inc.Chapter

237The

primary

determinant

of

priceelasticity

of

demand

is

the

availabilityofsubstitutesMany

substitutes,

demand

is

price

elasticCan

easily

move

to

another

good

with

priceincreasesFew

substitutes,

demand

is

price

inelasticPrice

Elasticity

of

Demand©2005

Pearson

Education,Inc.Chapter

238Looking

at

a

linear

demand

curve,

as

wemove

along

the

curve

Q/

P

isconstant,but

P

and

Q

willchangePrice

elasticity

of

demand

must

thereforebe

measured

at

a

particular

point

on

thedemand

curveElasticity

will

change

along

the

demandcurve

in

a

particular

wayPrice

Elasticity

of

Demand©2005

Pearson

Education,Inc.Chapter

239Given

a

linear

demand

curveElasticity

depends

on

slope

and

on

thevalues

of

P

and

QThe

top

portion

of

demand

curve

is

elasticPrice

is

high

and

quantity

smallThe

bottom

portion

of

demand

curve

isinelasticPrice

is

low

and

quantity

highPrice

Elasticity

of

Demand8

QPrice424Ep

=-1Ep

=0EP

=

-

ElasticInelasticDemand

CurveQ

=

8

–

2P©2005

Pearson

Education,Inc.Chapter

240Price

Elasticity

of

Demand©2005

Pearson

Education,Inc.Chapter

241The

steeper

the

demand

curve,

the

moreinelastic

the

demand

for

thegoodbecomesThe

flatter

the

demand

curve,

the

moreelastic

the

the

demand

for

thegoodbecomesTwo

extreme

cases

of

demand

curvesCompletely

inelastic

demand

–

verticalInfinitely

elastic

demand

–

horizontalInfinitely

Elastic

DemandDP*Quantity©2005

Pearson

Education,Inc.Chapter

242PriceEP

=

∞Completely

Inelastic

DemandQuantityPriceQ*©2005

Pearson

Education,Inc.Chapter

243DEP

=

0Other

Demand

ElasticitiesIncome

Elasticity

of

DemandMeasures

how

much

quantity

demandedchanges

with

a

change

in

income©2005

Pearson

Education,Inc.Chapter

244Other

Demand

ElasticitiesCross-Price

Elasticity

ofDemandMeasures

the

percentage

change

in

thequantity

demanded

of

one

good

that

resultsfrom

a

one

percent

change

in

the

price

ofanother

good©2005

Pearson

Education,Inc.Chapter

245Other

Demand

Elasticities©2005

Pearson

Education,Inc.Chapter

246Complements:

Cars

and

TiresCross-price

elasticity

of

demand

is

negativePrice

of

cars

increases,

quantity

demandedoftires

decreasesSubstitutes:

Butter

and

MargarineCross-price

elasticity

of

demand

is

positivePrice

of

butter

increases,

quantity

of

margarinedemanded

increasesPrice

Elasticity

of

SupplyMeasures

the

sensitivity

of

quantitysupplied

given

a

change

inpriceMeasures

the

percentage

change

in

quantitysupplied

resulting

from

a

1

percent

change

inprice©2005

Pearson

Education,Inc.Chapter

247Point

vs.

Arc

ElasticitiesPoint

elasticity

of

demandPrice

elasticity

of

demand

at

a

particular

pointon

the

demand

curveArc

elasticity

of

demandPrice

elasticity

of

demand

calculated

over

arange

of

prices©2005

Pearson

Education,Inc.Chapter

248Elasticity:

An

Application©2005

Pearson

Education,Inc.Chapter

249During

the

1980’s

and

1990’s,

the

marketfor

wheat

went

through

changes

that

hadgreat

implications

for

American

farmersand

US

agricultural

policyUsing

the

supply

and

demand

curves

forwheat,

we

can

analyze

what

occurred

inthis

marketElasticity:

An

Application©2005

Pearson

Education,Inc.Chapter

250Supply:

QS

=

1900

+

24PDemand:

QD

=

3550

–

266PElasticity:

An

Application©2005

Pearson

Education,Inc.Chapter

251QD

=

QS1800

+

240P

=

3550

–

266P506P

=

1750P

=

$3.46

perbushelQ

=

1800

+

(240)(3.46)

=

2630millionbushelsElasticity:

An

ApplicationWe

can

find

the

elasticities

of

demandand

supply

at

thesepoints©2005

Pearson

Education,Inc.Chapter

252Elasticity:

An

ApplicationAssume

the

price

of

wheat

is$4.00/bushel

due

to

decrease

in

supply©2005

Pearson

Education,Inc.Chapter

253Elasticity:

An

Application©2005

Pearson

Education,Inc.Chapter

254In

2002,

the

supply

and

demand

forwheat

were:Supply:

QS

=

1439

+

267PDemand:

QD

=

2809

–

226PElasticity:

An

Application©2005

Pearson

Education,Inc.Chapter

255QD

=

QS2809

-

226P

=

1439

+

267PP

=

$2.78

perbushelQ

=

2809

-

(226)(2.78)

=

2181millionbushelsPrice

of

wheat

fell

in

nominal

terms.Short-RunVersus

Long-RunElasticity©2005

Pearson

Education,Inc.Chapter

256Price

elasticity

varies

with

the

amount

oftime

consumers

have

to

respond

to

apriceShort-run

demand

and

supply

curvesoften

look

very

different

from

their

long-run

counterpartsShort-RunVersus

Long-RunElasticity©2005

Pearson

Education,Inc.Chapter

257DemandIn

general,

demand

is

much

more

priceelastic

in

the

long

runConsumers

take

time

to

adjust

consumptionhabitsDemand

might

be

linked

to

another

goodthatchanges

slowlyMore

substitutes

are

usually

available

in

thelong

runGasoline:

Short-Run

andLong-RunDemand

CurvesDSRDLRPeople

cannot

easilyadjust

consumption

in

theshort

run.In

the

long

run,

peopletend

to

drive

smaller

andmore

fuel

efficient

cars.Quantity

of

Gas©2005

Pearson

Education,Inc.Chapter

258PriceShort-RunVersus

Long-RunElasticity©2005

Pearson

Education,Inc.Chapter

259Demand

and

DurabilityFor

some

durable

goods,

demand

ismoreelastic

in

the

short

runIf

goods

are

durable,

then

when

priceincreases,

consumers

choose

to

hold

on

tothe

good

instead

of

replacing

itBut

in

long

run,

older

durable

goods

will

haveto

bereplacedDSRDLRInitially,

people

may

putoff

immediatecarpurchaseIn

long

run,

older

carsmust

be

replacedCars:Short-Run

andLong-RunDemand

CurvesQuantity

ofCars©2005

Pearson

Education,Inc.Chapter

260PriceShort-RunVersus

Long-RunElasticity©2005

Pearson

Education,Inc.Chapter

261Income

elasticity

also

varies

withtheamount

of

time

consumers

have

torespond

to

an

incomechangeFor

most

goods

and

services,incomeelasticity

is

larger

in

the

long

runWhen

income

changes,

it

takes

time

to

adjustspendingShort-RunVersus

Long-RunElasticity©2005

Pearson

Education,Inc.Chapter

262Income

elasticity

of

durable

goodsIncome

elasticity

is

less

in

the

long

runthanin

the

short

runIncreases

in

income

mean

consumers

will

wantto

hold

more

carsOnce

older

cars

are

replaced,

purchases

willonly

be

to

replace

old

carsLess

purchases

from

income

increase

in

longrun

than

in

short

runDemand

for

Gasoline©2005

Pearson

Education,Inc.Chapter

263Demand

for

Automobiles©2005

Pearson

Education,Inc.Chapter

264Short-RunVersus

Long-RunElasticity©2005

Pearson

Education,Inc.Chapter

265Most

goods

and

services:Long-run

price

elasticity

of

supply

is

greaterthan

short-run

price

elasticity

ofsupplyOther

Goods

(durables,

recyclables):Long-run

price

elasticity

of

supply

is

less

thanshort-run

price

elasticity

of

supplySSRQuantity

Primary

CopperPriceShort-RunVersus

Long-RunElasticitySLRDue

tolimitedcapacity,

firms

are

limited

byoutput

constraintsin

the

short

run.In

the

long

run,

theycan

expand.©2005

Pearson

Education,Inc.Chapter

266SSRQuantity

Secondary

CopperPriceShort-RunVersus

Long-RunElasticitySLRPrice

increasesprovide

an

incentiveto

convert

scrapcopper

into

new

supply.In

the

long

run,

thisstock

of

scrap

copperbegins

to

fall.©2005

Pearson

Education,Inc.Chapter

267Supply

of

Copper©2005

Pearson

Education,Inc.Chapter

268Short-Run

vs.

Long-RunElasticity

–

An

Application©2005

Pearson

Education,Inc.Chapter

269Why

are

coffee

prices

very

volatile?Most

of

the

world’s

coffee

is

produced

inBrazilMany

changing

weather

conditions

affect

thecrop

of

coffee,

thereby

affecting

pricePrice

following

bad

weather

conditionsisusually

short-livedIn

long

run,

prices

come

back

tooriginallevels,

all

else

equalPrice

of

Brazilian

Coffee©2005

Pearson

Education,Inc.Chapter

270Short-Run

vs.

Long-RunElasticity

–

An

Application©2005

Pearson

Education,Inc.Chapter

271Demand

and

supply

are

more

elastic

inthe

long

runIn

the

short

run,

supply

is

completelyinelasticWeather

may

destroy

part

of

the

fixed

supply,decreasing

supplyDemand

is

relatively

inelastic

as

wellPrice

increases

significantlyDP0Q0QuantityPriceA

freeze

or

droughtdecreases

the

supplyof

coffeeS’

SQ1An

Application

-

CoffeePrice

increasessignificantly

due

toinelastic

supply

anddemandP1©2005

Pearson

Education,Inc.72Chapter

2S’DSQ0P2P0Q2Intermediate-RunSupply

and

demandaremore

elasticPrice

falls

back

toP2.An

Application

-

CoffeeQuantity©2005

Pearson

Education,Inc.Chapter

273PriceSP0Q0Long-RunSupply

is

extremely

elasticPrice

falls

back

toP0.Quantity

back

to

Q0.An

Application

-

CoffeeQuantityPriceD©2005

Pearson

Education,Inc.Chapter

274Predicting

the

Effects

ofChanging

Market

Conditions©2005

Pearson

Education,Inc.Chapter

275Supply

and

demand

analysis

can

beusedto

predict

the

effects

of

changing

marketconditionsLinear

demand

and

supply

must

be

fit

tomarket

dataGiven

equilibrium

price

and

quantity

along

withelasticities

of

supply

and

demand,

we

cancalculate

the

curves

that

fit

theinformationWe

can

then

calculate

changes

in

themarketPredicting

the

Effects

ofChanging

Market

Conditions©2005

Pearson

Education,Inc.Chapter

276We

knowEquilibrium

Price,

P*Equilibrium

Quantity,

Q*Price

elasticity

of

supply,

ESPrice

elasticity

of

demand,EDPredicting

the

Effects

ofChanging

Market

ConditionsLet’s

begin

with

the

equations

for

supply,demand,

elasticity:Demand:

Q

=

a

–

bPSupply:

Q

=

c

+

dPElasticity:

(P/Q)(

Q/

P)We

must

calculate

numbers

for

a,

b,

c,and

d.©2005

Pearson

Education,Inc.Chapter

277Predicting

the

Effects

ofChanging

Market

Conditions©2005

Pearson

Education,Inc.Chapter

278The

slope

of

the

demand

curveaboveequals

Q/

P

which

equals

-bThe

slope

of

the

supply

curve

aboveequals

Q/

P

which

equals

dDemand: ED

=

-b(P*/Q*)Supply: ES

=

d(P*/Q*)Demand:

Q

=

a

-

bPPricea/bSupply:

Q

=

c

+

dP-c/dP*Q*ED

=

-bP*/Q*ES

=

dP*/Q*Predicting

the

Effects

ofChanging

Market

Conditions©2005

Pearson

Education,Inc.Chapter

279QuantityPredicting

the

Effects

ofChanging

Market

Conditions©2005

Pearson

Education,Inc.Chapter

280Using

P*,

Q*

and

the

elasticities,

we

cansolve

for

b

and

c

from

supplyES

=d(P*/Q*)1.6

=

d(0.75/7.5)

=

0.1dd

=

16

Q

=

c

+

dP

7.5

=

c

+

(16)(0.75)

=

c

+

12c

=

-4.5Predicting

the

Effects

ofChanging

Market

Conditions©2005

Pearson

Education,Inc.Chapter

281Using

P*,

Q*

and

the

elasticities,

we

cansolve

for

a

and

b

from

demandED

=–b(P*/Q*)-0.8

=

-b(0.75/7.5)

=

–0.1bb

=

8

Q

=

a

–

bP

7.5

=

a

–

(8)(0.75)

=

a

–

6a

=

13.5Predicting

the

Effects

ofChanging

Market

Conditions©2005

Pearson

Education,Inc.Chapter

282We

now

have

equations

for

supply

anddemandSupply: Q

=

–4.5

+

16PDemand: Q

=

13.5

–

8PSetting

them

equal

will

give

usequilibrium

price

and

quantity

with

whichwebeganSupply:QS

=

-4.5

+

16P-c/dDemand:

QD

=

13.5

-

8PPricea/b.757.5Predicting

the

Effects

ofChanging

Market

Conditions©2005

Pearson

Education,Inc.Chapter

283Mmt/yrPredicting

the

Effects

ofChanging

Market

ConditionsWe

have

written

supply

and

demand

sothat

they

only

depend

upon

priceDemand

could

also

depend

upon

othervariables

such

as

incomeDemand

would

then

be

written

as:©2005

Pearson

Education,Inc.Chapter

284Predicting

the

Effects

ofChanging

Market

Conditions©2005

Pearson

Education,Inc.Chapter

285We

know

the

following

informationregarding

the

copper

industry:I

=

1.0P*

=

0.75Q*

=

7.5b

=

8Income

elasticity:

EI=

1.3Predicting

the

Effects

ofChanging

Market

Conditions©2005

Pearson

Education,Inc.Chapter

286Using

the

elasticity

of

income

formula,wecan

solve

for

fEI

=(I/Q)(ΔQ/ΔI)1.3

=

(1.0/7.5)(f)f

=

9.75Substituting

back

into

demand

equationgives

a

=

3.75Declining

Demand

and

theBehavior

of

Copper

Prices©2005

Pearson

Education,Inc.Chapter

287Copper

has

gone

through

difficult

marketchanges

leading

the

significantly

reducedprices

most

from

decreased

demandfromA

decrease

in

the

growth

rate

of

powergenerationThe

development

of

substitutes:

fiber

opticsand

aluminumReal

v