1、Unit ThreeText:Price Elasticities of Demand and Supply（需求与供给的价格弹性）1.Key words2.Price elasticity of demand3.Price elasticity of supply4.Law of diminishing marginal utility5.Consumer sovereignty6.Translate the following into Chinese7.Questionsprice elasticity of demandprice inelastic in demandprice el
2、astic in demandprice elasticity of supplysales taxesnecessities of lifetotal revenuediminishing marginal utility or satisfactionsaturation pointallocation of resourcesderived demandconsumer sovereignty2.1 Price elasticity of demand2.2 Price inelastic and elastic in demand2.3 Importance of price elas
3、ticity of demandMeasures how greatly a price change affects a change in demand.Price inelastic in demand Some goods are so much in demand that however much prices rise,the demand for them remains the same or drops off only slightly.These goods are called price inelastic in demand.Price elastic in de
4、mand Other goods,which are bought readily if their prices are low but are bought in much smaller quantities if the prices rise,are termed price elastic in demand.It is important to government taxation policy.If a good is relatively price inelastic in demand,then imposing a tax on it will not cause s
5、ales to drop substantially.If the government intends to use sales taxes to raise revenue,it would be pointless to put the tax on products which are elastic in demand because,as the tax causes prices to rise,consumers will buy an untaxed substitute if that is possible(and if it is cheaper),or just cu
6、t down the quantity they purchase.It is also important to sellers as it indicates to them whether a drop in price will result in increased revenue from increased sales,or whether it will merely result in a loss of total revenue.If sellers raise the prices of their good,and demand is elastic,they may
7、 lose sales,resulting in a loss of total revenue.If demand is inelastic they can raise prices and not lose revenue.3.1 Price elasticity of supply3.2 Price inelastic and elastic in supplyIt refers to a relative responsiveness of the quantity supplied of a good when the market price of the good change
8、s.Supply can also be inelastic in response to changes in price,particularly if the supply is physically limited and cannot be greatly increased in the short run,no matter what price is offered.Supply is elastic when it can be increased readily.4.1 Definition of law of diminishing marginal utility4.2
9、 Importance of law of diminishing marginal utilityConsumers pleasure or satisfaction diminishes as they buy each extra unit,until they reach saturation point.It is this aspect of consumer demand,as well as the law of demand that buyers will buy more at a lower price,which helps to make the demand cu
10、rve slope downwards from left to right.The price which buyers are prepared to offer will induce suppliers to make their production plans on the basis of the strength of the market forces.If consumers are prepared to pay more for certain goods this behavior is a signal to the producers to supply thos
11、e items in preference to others for which demand is low or prices obtained are low.Firms will therefore obtain the resources needed to satisfy consumer demand.The price mechanism indicates what should be produced,and this in turn leads to the allocation of resources for that purpose.This term means
12、that the consumers are supreme and their decisions are allimportant in deciding what shall be produced and how production shall be distributed.In such a purely competitive market,the consumer has control over the way in which the economic problem is solved and over the production decisions made.Econ
13、omic choices in this system are made purely through the market mechanism as it reacts to peoples demands.This kind of situation is only partly true of a modern capitalist economy,in which consumers can choose only between those items which are offered.Their alternatives are limited.(1)Some goods are
14、 so much in demand that however much prices rise,the demand for them remains the same or drops off only slightly.(2)The concept of elasticity of demand is important to sellers as it indicates to them whether a drop in price will result in increased revenue from increased sales,or whether it will mer
15、ely result in a loss of total revenue.(3)As the purchase of each chocolate bar gives less pleasure than the one before,it makes more sense to use the money for something which gives greater satisfaction.(4)If consumers are prepared to pay more for certain goods this behavior is a signal to the produ
16、cers to supply those items in preference to others for which demand is low or prices obtained are low.(1)Why is the concept of price elasticity of demand important for sellers?(2)If the government wants to place a tax on an item,would it choose one which is price elastic in demand?Give reasons for your answer.(3)Explain the law of diminishing marginal utility.
