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# MSU - EC 201 - Class Notes - EC Lecture 5 Week 4 Chapter 5 -

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MSU - EC 201 - Class Notes - EC Lecture 5 Week 4 Chapter 5 -

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This preview shows pages 1 - 2 of a 4 page document. to view the rest of the content Yellow  is  important  facts   Green  is  definitions   Bold  is  also  important Clicker  Questions Coming  Attractions:   Reading:  Elasticity  -­‐ Complete   Uses  of  Elasticity   Chapter  5   PROBLEM  SET  #1  ON  D2L  (Week  of  September  26th)   Today:   Four  Review  questions  on  "shocks" Definition   Computation   Determinants ELASTICITY   I. Review   1. Does  it  shift  Demand  or  Supply?   2. Does  it  shift  to  the  right  or  to  the  left? 3. Use  Demand  and  Supply  Diagram  to  see  new  Price  and  Quantity Steps  in  thinking  about  shocks   Both  the  quantity  and  the  price  will  be  higher   If  the  price  of  M&M's  a  substitute,  increase,  then  for  snickers  candy ○ An  increase  in  Demand  (shift  to  right)
○ An  increase  in  price
Plus ○ An  increase  in  Quantity  Supplied
○ A  decrease  in  Quantity  Demanded
• Result ○ Both  fall   • What  is  the  effect  on  tuition  and  enrollment  of  an  increase  in  faculty  salaries? ○ Income  falls  -­‐>  effects  demand
○ Because  classes  at  LCC  are  inferior,  a  decrease  in  income  causes  demand  to
increase.  This  creates  an  excess  demand  and  price  tends  to  rise II. Elasticity   • Classes  at  LCC  are  an  inferior  good.  People's  incomes  fall,  what  is  the  effect  on  LCC   tuition  and  enrollment? • In  general,  elasticity  measures  the  of  one  variable  RESPONSIVENESS to  changes  in   another  variable. Many  Elasticity  Measures   ○ Price  elasticity  of  demand
○ Income  elasticity  of  demand
○ Cross-­‐price  elasticity  of  demand
○ Elasticity  of  supply  (Next  week)
• In  principle.  You  can  compute  the  elasticity  between  any  two  variables   Price  Elasticity  of  Demand  (most  important  one) • Measures  the  responsiveness  of  quantity  demanded to  changes  in  a  good's  own   price.   • The  price  elasticity  of  demand  is  the  percent  change  in  quantity  demanded  divided  by   the  percent  change  in  price  that  caused  the  change  in  quantity  demanded. ○ ! 𝑐ℎ𝑎𝑛𝑔𝑒  𝑖𝑛  𝑄 𝑄 ⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯
𝑐ℎ𝑎𝑛𝑔𝑒  𝑖𝑛  𝑃
𝑃 ⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯ ⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯- = 𝐸(𝑑) ○ ABSOLUTE  VALUE   • Symbol  form:   • Midpoint  method  of  calculating Terms  to  Learn   • Demand  is  elastic  when  the  numerical  value  of  elasticity  is  greater  than  1. • Demand  is  inelastic  when  the  numerical  value  of  elasticity  is  less  than  1.   • Demand  is  unit  elastic  when  the  numerical  value  or  elasticity  equals  1. \$/BAR   Q 0.25 39 0.20 58   (( 𝟏𝟗
𝟒𝟖
⎯⎯⎯/(. 𝟓))/((. 𝟎𝟓)/. 𝟐𝟐𝟓))) ○ If  price  of  coke  decreased  by  10%  and  quantity  demanded  of  coke  increased   from  80  to  120  unites?   ○ 40/100  =  0.4  40  percent
○ Divided  by
○ 10  percent
○ Price  elasticity  =  4
• What  if  partial  info? Determinants  of  Demand  Elasticity   1. The  more  substitutes  there  are  available  for  a  good,  the  more  elastic  the  demand  for   It  will  tend  to  be.   Cigarettes   .46 Coffee .25 Potatoes .30 Corn .50 AUTOS 1.4 RESTERAUNTS 2.3
BOOKS
3.1 • Product  elasticities The  NARROWER (smaller)  the  market  boundaries,  the  more  elasticthe  demand  will   tend  to  be. 2. Product  market  boundaries   • Geographic  Market  Boundaries ○ The  shorter  the  period  of  time,  the  lowerthe  price  elasticity  of  demand   3. The  longer  the  period  of  time  the  more  elastic  the  demand  will  tend  to  be ○ Short  run  elasticity  -­‐ 0.2
○ Long  run  elasticity  -­‐ 0.5
• Price  elasticity  -­‐ gasoline   Lecture  5  Week  4  Chapter  5  -­‐ Elasticity   Monday,  September   19,  2016 12:41  PM Yellow  is  important  facts   Green  is  definitions   Bold  is  also  important Clicker  Questions Coming  Attractions:   Reading:  Elasticity  -­‐ Complete   Uses  of  Elasticity   Chapter  5   PROBLEM  SET  #1  ON  D2L  (Week  of  September  26th)   Today:   Four  Review  questions  on  "shocks" Definition   Computation   Determinants ELASTICITY   I. Review   1. Does  it  shift  Demand  or  Supply?   2. Does  it  shift  to  the  right  or  to  the  left? 3. Use  Demand  and  Supply  Diagram  to  see  new  Price  and  Quantity Steps  in  thinking  about  shocks   Both  the  quantity  and  the  price  will  be  higher   If  the  price  of  M&M's  a  substitute,  increase,  then  for  snickers  candy ○ An  increase  in  Demand  (shift  to  right)
○ An  increase  in  price
Plus ○ An  increase  in  Quantity  Supplied
○ A  decrease  in  Quantity  Demanded
• Result ○ Both  fall   • What  is  the  effect  on  tuition  and  enrollment  of  an  increase  in  faculty  salaries? ○ Income  falls  -­‐>  effects  demand
○ Because  classes  at  LCC  are  inferior,  a  decrease  in  income  causes  demand  to
increase.  This  creates  an  excess  demand  and  price  tends  to  rise II. Elasticity   • Classes  at  LCC  are  an  inferior  good.  People's  incomes  fall,  what  is  the  effect  on  LCC   tuition  and  enrollment? • In  general,  elasticity  measures  the  of  one  variable  RESPONSIVENESS to  changes  in   another  variable. Many  Elasticity  Measures   ○ Price  elasticity  of  demand
○ Income  elasticity  of  demand
○ Cross-­‐price  elasticity  of  demand
○ Elasticity  of  supply  (Next  week)
• In  principle.  You  can  compute  the  elasticity  between  any  two  variables   Price  Elasticity  of  Demand  (most  important  one) • Measures  the  responsiveness  of  quantity  demanded to  changes  in  a  good's  own   price.   • The  price  elasticity  of  demand  is  the  percent  change  in  quantity  demanded  divided  by   the  percent  change  in  price  that  caused  the  change  in  quantity  demanded. ○ ! 𝑐ℎ𝑎𝑛𝑔𝑒  𝑖𝑛  𝑄 𝑄 ⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯
𝑐ℎ𝑎𝑛𝑔𝑒  𝑖𝑛  𝑃
𝑃 ⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯ ⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯- = 𝐸(𝑑) ○ ABSOLUTE  VALUE   • Symbol  form:   • Midpoint  method  of  calculating Terms  to  Learn   • Demand  is  elastic  when  the  numerical  value  of  elasticity  is  greater  than  1. • Demand  is  inelastic  when  the  numerical  value  of  elasticity  is  less  than  1.   • Demand  is  unit  elastic  when  the  numerical  value  or  elasticity  equals  1. \$/BAR   Q 0.25 39 0.20 58   (( 𝟏𝟗
𝟒𝟖
⎯⎯⎯/(. 𝟓))/((. 𝟎𝟓)/. 𝟐𝟐𝟓))) ○ If  price  of  coke  decreased  by  10%  and  quantity  demanded  of  coke  increased   from  80  to  120  unites?   ○ 40/100  =  0.4  40  percent
○ Divided  by
○ 10  percent
○ Price  elasticity  =  4
• What  if  partial  info? Determinants  of  Demand  Elasticity   1. The  more  substitutes  there  are  available  for  a  good,  the  more  elastic  the  demand  for   It  will  tend  to  be.   Cigarettes   .46 Coffee .25 Potatoes .30 Corn .50 AUTOS 1.4 RESTERAUNTS 2.3
BOOKS
3.1 • Product  elasticities The  NARROWER (smaller)  the  market  boundaries,  the  more  elasticthe  demand  will   tend  to  be. 2. Product  market  boundaries   • Geographic  Market  Boundaries ○ The  shorter  the  period  of  time,  the  lowerthe  price  elasticity  of  demand   3. The  longer  the  period  of  time  the  more  elastic  the  demand  will  tend  to  be ○ Short  run  elasticity  -­‐ 0.2
○ Long  run  elasticity  -­‐ 0.5
• Price  elasticity  -­‐ gasoline   Lecture  5  Week  4  Chapter  5  -­‐ Elasticity   Monday,  September   19,  2016 12:41  PM

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##### Description: These notes cover Professor Liedholm's Lecture on Elasticity regarding demand.
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