“When we talk about economics, there’s something known as a demand curve with elasticity.”
“We might as reasonably dispute,” Alfred Marshall wrote in his famous economics textbook first published in 1890, “whether it is the upper or the under blade of a pair of scissors that cuts a piece of paper, as whether value is governed by utility or cost of production.”
Prices are determined in the marketplace, through the communication between buyers and sellers, jointly through a negotiation reflecting their willingness to pay, and their costs of offering. Marshall offered us these tools, the demand curve and the supply curve, to understand price determination in perfectly competitive markets. And he also characterized them, and used them to illustrate price determination in a wide variety of examples.
As a part of this he introduced the notion of “elasticity,” a concept that Congresswoman Alexandria Ocasio-Cortez learned well in her economics courses, and used to drive home what she felt were some important lessons in understanding health care. Listen to her.
And so this week’s class in our course, Economics for Everyone, is about elasticity. If she can understand it, so can you. If she can use it, so can you. And that is what we do in the lecture: define the concept, and show how it is used to understand market outcomes for some policy relevant examples.
Here are some questions that will motivate our discussion, and help structure your reading of the course materials: download them and think about them as part of your preparation for the next two lectures.
Download the presentation for Lecture 6 and 7, “Understanding and Using Demand and Supply Curves” as a pdf, and if you like listen to a version that was narrated in a previous year of the course.