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by: May Thu

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ECO211 Week 3 Lectures ECON 221

Marketplace > University of Miami > Economcs > ECON 221 > ECO211 Week 3 Lectures
May Thu
UM
GPA 3.8

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These set of notes include the price elasticity examples from class with detailed tables and graphs. There are also a detailed graph and table explanation of the MC, AC, AVC, and AFC curves along w...
COURSE
Economic Principles and Problems 211
PROF.
David Spigelman
TYPE
Class Notes
PAGES
5
WORDS
CONCEPTS
ECO211, Microeconomics, Price Elasticity, Competitive Model
KARMA
25 ?

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This 5 page Class Notes was uploaded by May Thu on Saturday January 23, 2016. The Class Notes belongs to ECON 221 at University of Miami taught by David Spigelman in Spring 2016. Since its upload, it has received 88 views. For similar materials see Economic Principles and Problems 211 in Economcs at University of Miami.

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Date Created: 01/23/16
Monday, January 25, 2016 Week 3 Lecture 1, 2, 3 ECO211 - Elasticity of demand • Price elasticity of demand: ???? = ???? orη • Price elasticity of supply: η - Characteristics of ???? and η Values ????fand η Characteristics ???? and η= 0 Perfectly Inelastic Inelastic ???? and η= between 0 and 1 Unit Elastic ???? and η= 1 ???? and η= greater than 1 Elastic Perfectly Elastic ???? and η= ∞ - Graph Example 1 Price Quantity Demande(????) Quantity Suppli(η) 10 0 7.5 9 1 6 8 2 4.5 7 3 3 6 4 1.5 5 5 0 1 Monday, January 25, 2016 •(????) is greater than 1, the demand curve is elastic and is above the unit elastic point which is 1 (Increase supply and lower price) • (η) is greater than 1, the supply curve is elastic • Short-run: Things tend to be more inelastic • Long-run: Things tend to be more elastic - Perfect Competition: no one buyer or seller can affect the market price by themselves (both consumer and ﬁrms are price takers) (free entry: anyone can enter the market) - Inputs of the production function (Factors of production) • Capital: physical input to the production process to create output (land, natural resources, machinery, factories) • Labor: human work effort - Cost of production - Cost = Fixed Cost + Variable Cost - Cost of Production Example 2 - Function: C= 4x+2q - p= 10 2 Monday, January 25, 2016 q: level oFC (Fixed VC C (Total MC ARC AVC AC R (p x q) Profit output for Cost) (variable Cost) (Marginal (FC/ q) (VC/q) (C/q) (R-C) the firm cost) (2q ) Cost) (ΔC/ΔQ) 0 4 0 4 2 - - - 0 -4 1 4 2 6 6 4 2 6 10 4 2 4 8 12 10 2 4 6 20 8 3 4 18 22 14 4/3 6 22/3 30 8 4 4 32 36 18 1 8 9 40 5 5 4 50 54 - 4/5 10 10 4/5 50 -4 Proﬁt is going to be maximum between q (2) and q (3) - MC will go through and intersect AC curve at its maximum -AC will always be a “U” shape ** Chapter 7 Online Homework NOT NEEDED, NO textbook reading required** ** Everything that’s going to be on the test will be mentioned during lecture** - Competitive Model (Perfect Competition/ Competition) • Assumptions: - Many buyers and sellers (both ﬁrms and consumers are price takers) - Free entry and exit (no barriers to enter market) 3 Monday, January 25, 2016 - 0 proﬁts in the long run (not actually 0, but economists don’t know what the rate of return is so they use 0) - homogeneous product (undifferentiated product): everybody makes exactly the same thing • Point of beauty: Proﬁt = 0 • Firms must operate well to stay within point of beauty to stay in business • AC curve is like the supply curve for the ﬁrm • Supply curve for the industry is the aggregate supply • if the ﬁrm is not regulated (has choices): Output= MC = MR - Finding Proﬁt • Function: Proﬁt = (P-AC) x q •Shaded rectangle is the proﬁt •There is proﬁt if the shaded rectangle is above the AC curve, loss if the shaded rectangle is below the AC curve. 4 Monday, January 25, 2016 Example test questions 1. What does it mean when the long-run supply curve is horizontal. - Because there is free entry and exit, when the price of a good is too high, ﬁrms will enter the market (supply increases), causing the price to go down back to the point of beauty/ back new equilibrium at the long run supply curve. D2 •LR Supply is in line with the point of beauty • Will always go back to the point of •Situation: Demand goes up, E1 shifts to E2 beauty causing the price to go up • Because prices go up, more ﬁrms enter the market causing the Supply to increase, E2 shifts to E3 and meets back at the LRS curve 2. What does it mean when the price is determined by technology in a competitive market? • If the ﬁrm comes up with better technology to increase output more efﬁciently, the AC curve shifts down, and the point of beauty goes down (Price becomes cheaper and the consumer beneﬁts) 5

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