Chapter 5 Journaling (#3)

In Chapter Five, Mankiw began to discuss the idea of elasticity and its applications on supply and demand. Essentially elasticity is the way in which the responsiveness of quantity demanded or quantity supplied to one of its determinants, namely price, is measured. That specifically is called price elasticity, and is the one Mankiw talks about most in the chapter. Thankfully, I found that this topic was fairly easy to understand if you have a good foundation of understanding on supply and demand curves, as well as normal and inferior goods. For example, it was easy for me to understand the concepts of positive and negative relationships between price and total revenue (price times quantity sold) because I was already able to see similar positive and negative relationships between income and normal and inferior goods in the chapter before. In this case, we see that when the price and total revenue move in the same direction (positive) the demand is inelastic, meaning the demand stays fairly constant no matter the price. It is the opposite for elastic demand, when the price and total revenue have a negative relationship.The one thing that I was confused about in this chapter was the graphing component. I understood that some of the graphs used in this chapter were similar to the supply and demand curve graphs I became familiar with in the last chapter, however I did not quite understand how they translated to elasticity. When there is zero elasticity, there is a vertical supply curve because even a dramatic change in price cannot affect a change in demand, but if there is perfect elasticity, the curve is horizontal because even a small change in price can mean a huge change in demand.