# 经济代写|微观经济学代写Microeconomics代考|ECON106

## 经济代写|微观经济学代写Microeconomics代考|Substitution at Work

In the first of these examples, we focus on the role of substitution. When the price of a good or service goes up, rational consumers generally turn to less expensive substitutes. Can’t meet the payments on a new car? Then buy a used one, or rent an apartment on a bus or subway line. French restaurants too pricey? Then go out for Chinese, or eat at home more often. National Football League tickets too high? Watch the game on television, or read a book. Can’t afford a book? Check one out of the library, or download some reading matter from the Internet. Once you begin to see substitution at work, you’ll be amazed by the number and richness of the examples that confront you every day.

Among his many residences, Amazon CEO Jeff Bezos owns a 29,000-square-foot home in Medina, Washington. Bezos also owns a 17,000-square-foot apartment in Manhattan. Although both residences are enormous, Bezos’s apartment in Manhattan is much smaller than his home in Medina. Bezos is one of the richest people in the world, so why would he choose to purchase a much smaller home in Manhattan than Medina?

For people trying to decide how large a home to buy, the most obvious difference between Manhattan and Medina is the huge difference in housing prices. The cost of land alone is several times higher in Manhattan than in Medina, and construction costs are also much higher. So even though Bezos could afford to purchase a 29,000-square-foot home in Manhattan, housing prices are so high that he simply chooses to purchase a smaller home and spend his fortune in other ways.

Here we note in passing that an additional factor in Bezos’s decision may have been the link between context and evaluation: A house seems small only if it is small relative to other houses in the same local environment. Because Manhattan prices are so high, others choose to build smaller houses there, too, so a 17,000-square-foot house in Manhattan is a larger dwelling, in relative terms, than a 29,000-square-foot house in Medina. We will discuss this point more thoroughly in Chapter 8, An Introduction to Behavioral Economics.

An especially vivid illustration of substitution occurred during the late 1970 s, when fuel shortages brought on by interruptions in the supply of oil from the Middle East led to sharp increases in the price of gasoline and other fuels. In a variety of ways-some straightforward, others remarkably ingenious-consumers changed their behavior to economize on the use of energy. They formed carpools; switched to public transportation; bought four-cylinder cars; moved closer to work; took fewer trips; turned down their thermostats; installed insulation, storm windows, and solar heaters; and bought more efficient appliances. Many people even moved farther south to escape high winter heating bills.

As the next example points out, consumers not only abandon a good in favor of substitutes when it gets more expensive, but they also return to that good when prices return to their original levels.

## 经济代写|微观经济学代写Microeconomics代考|Elasticity and Total Expenditure

The pattern observed in the preceding example holds true in general. For a straight-line demand curve, total expenditure is highest at the price that lies on the midpoint of the demand curve.

Bearing in mind these observations about how expenditure varies with price, let’s return to the question of how the effect of a price change on total expenditure depends on the price elasticity of demand. Suppose, for example, that the business manager of a rock band knows she can sell 5,000 tickets to the band’s weekly summer concerts if she sets the price at $\$ 20$per ticket. If the elasticity of demand for tickets is equal to 3 , will total ticket revenue go up or down in response to a 10 percent increase in the price of tickets? Total revenue from tickets sold is currently$(\$20 /$ ticket $) \times(5,000$ tickets $/$ week $)=$ $\$ 100,000$per week. The fact that the price elasticity of demand for tickets is 3 implies that a 10 percent increase in price will produce a 30 percent reduction in the number of tickets sold, which means that quantity will fall to 3,500 tickets per week. Total expenditure on tickets will therefore fall to$(3,500$tickets/week$) \times(\$22 /$ ticket $)=$ $\$ 77,000$per week, which is significantly less than the current spending total. What would have happened to total expenditure if the band manager had reduced ticket prices by 10 percent, from$\$20$ to $\$ 18$? Again assuming a price elasticity of 3 , the result would have been a 30 percent increase in tickets sold-from 5,000 per week to 6,500 per week. The resulting total expenditure would have been ($\$18$ / ticket $) \times(6,500$ tickets $/$ week $)=\$ 117,000$per week, significantly more than the current total. These examples illustrate the following important rule about how price changes affect total expenditure for an elastically demanded good: Rule 1: When price elasticity of demand is greater than 1, changes in price and changes in total expenditure always move in opposite directions. Let’s look at the intuition behind this rule. Total expenditure is the product of price and quantity. For an elastically demanded product, the percentage change in quantity will be larger than the corresponding percentage change in price. Thus the change in quantity will more than offset the change in revenue per unit sold. Now let’s see how total spending responds to a price increase when demand is inelastic with respect to price. Consider a case like the one just considered except that the elasticity of demand for tickets is not 3 but$0.5$. How will total expenditure respond to a 10 percent increase in ticket prices? This time the number of tickets sold will fall by only 5 percent to 4,750 tickets per week, which means that total expenditure on tickets will rise to$(4,750$tickets/week$) \times(\$22$ /ticket $)=\$ 104,500$per week, or$\$4,500$ per week more than the current expenditure level.

# 微观经济学代考

## 经济代写|微观经济学代写微观经济学代考|弹性和总支出

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