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1、PriceElasticityofDemandandNon-linearDemandCurve----AnInquiryintoJosephE.Stiglitz’sTextbookCaseHualinPuYingQue(InternationalSchool,JinanUniversity,GuangzhouP.R.China)E-mail:georgepu@sina.comorconnieque@sina.comAbstract:JosephE.Stiglitzillustratedwithanon-lineardemandcurveinhisEconomicsthattheel
2、asticityofdemandforaluminumfallswhenpriceofaluminumrises.Thisillustrationisinconsistentwiththecaseoflineardemandcurveforwhichtheelasticityofdemandriseswhenpricerises.Ourtestofrandomlyselectednon-lineardemandfunctions,however,cannotsupportStiglitz’sillustration.Weconcludethatthismisconceptionis
3、possiblycausedbyamismatchofsubstitutabilitywithprice.Keyword:elasticityofdemand,demandcurve,JosephE.StiglitzI.IntroductionPriceelasticityofdemandisasimplebutkeyconceptinundergraduatetextbooksofprinciplesofeconomics,whichmeasureshowmuchthequantitydemandedrespondstoachangeinprice.AccordingtoMank
4、iw(2004,pp90-91),thepriceelasticityofdemandisdeterminedbyfourfactors,namely,availabilityofclosesubstitutes,necessitiesversusluxuries,definitionofmarket,andtimehorizon.Actually,thefourfactorscanbesummarizedasonefactor,thatis,availabilityofclosesubstitutes.Usually,therearefewerclosesubstitutesfo
5、rnecessities,broadlydefinedmarketsandinshorttimehorizons,butmuchmoresubstitutesforluxuries,narrowlydefinedmarketsandoverlongertimehorizons.Goodswithmoreclosesubstitutestendtohavemoreelasticdemandandthuslargerpriceelasticityofdemand(intermsofabsolutevaluebecausepriceelasticityofdemandisnormally
6、anegativenumber),andgoodswithfewersubstituteswillbelesselasticandhavesmallerpriceelasticityofdemand.Toillustratethispropertyofpriceelasticityofdemand,JosephE.Stiglitzusedanon-lineardemandcurveofaluminum,whichis,however,notconsistentwiththestylizedillustrationofpriceelasticityofdemandwithalinea
7、rdemandcurve.II.AComparisonofElasticityofDemandbetweenLinearandNon-linearDemandCurveAccordingtoStiglitz(2000,pp94-95),thedemandforaluminumismoreelasticatalowerpricebecauseofthegenericusageandmoreclosesubstitutes,whilethepriceelasticityo
