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by: Halimat Usman-Isiaka

Elasticityofsupplyanddemand.pdf ECON 102

Marketplace > Penn State Abington > Economcs > ECON 102 > Elasticityofsupplyanddemand pdf
Halimat Usman-Isiaka
Penn State Abington

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About this Document

notes on the elasticity of Supply and Demand. Highlighted parts are need for the exam.
Introductory Microeconomic Analysis and Policy
Thomas P. Murt
Class Notes
Econ 102.101, Thomas Murt, Murt, elasticity, supply and demand
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This 4 page Class Notes was uploaded by Halimat Usman-Isiaka on Monday February 1, 2016. The Class Notes belongs to ECON 102 at Penn State Abington taught by Thomas P. Murt in Winter 2015. Since its upload, it has received 58 views. For similar materials see Introductory Microeconomic Analysis and Policy in Economcs at Penn State Abington.


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Date Created: 02/01/16
Elasticity  of  supply  and  demand   Thursday,  October  8,  2015 6:21  PM Elasticity   1. Responsiveness   Price  elasticity   1. Measures  how  responsive    quantity  demanded  is  to  a  price  change   2. Percentage  change  in  quality  demanded  divided  by  percentage  change  in  price   TR 1. total  revenue=  price  *  quantity   2. Lower  the  price  (law  of  demand)  increases  the  quality  demanded   3. As  price  decreases     Bookmark  added  at  14:56  in  Audio  1 a. If  demand  is  elastic,  TR  increases   b. If  inelastic,  TR  decreases c. If  demand  is  unit  elastic,  TR  is  constant Price  elasticity  and  the  linear  D  curve   1. Straight  line  demand  curve   Constant  slope   2. Varying  elasticity   a. Demand  becomes  less  elastic  as  we  move  downwards   b. Upper  half:  elastic   c. Lower  half:  inelastic d. Midpoint:  unit  elastic   e. Higher  slope -­‐less  elasticity   f. Lower  slope -­‐ more  elasticity   Constant-­‐elasticity  demand  curves  ' 1. Horizontal  line   a. Any  price  increase  will  reduce  the  quantity  demanded  to  zero   b. Consumers  do  not   Determinates  of  price  elasticity   1. If  there  was  many  other  substituted  for  a  good  would  the  price  elasticity  be   greater  or  less 1. Horizontal  line   a. Any  price  increase  will  reduce  the  quantity  demanded  to  zero   b. Consumers  do  not   Determinates  of  price  elasticity   1. If  there  was  many  other  substituted  for  a  good  would  the  price  elasticity  be   greater  or  less a. High 2. The  grater  the  availability  of  substitutes  and  the  more  similar  the  substitutes   the  greater  the  price  elasticity   3. Longer  the  period  of  adjustments  the  greater  the  elasticity   (Remember  graphs  on  slide  15  on  chapter  5  for  quiz)   Audio 1 Audio  recording  started:  7:46  PM  Thursday,  November  19,  2015 Chapter  8 Thursday,  November  19,  2016:37  PM Audio 1 Audio  recording  started:  6:43  PM  Thursday,  November  19,  2015 • Perfectly  competitive  Market ○ Many  buyers  and  sellers   § Each  buys  or  sells  only  a  tiny  fraction  of  the  total  amount  in  the   market   • Firms  sell  a  commodity   ○ Standardized  product   • Buyers  and  sellers  are  fully  informed   ○ Prices  and  availability  of  all  resources  and  products   • Firms  and  resources  are  freely  mobile • Individual  buyer  or  seller   ○ No  control  over  price   ○ Price  takers • Market  Price   ○ Determined  by  supply  and  demand   • Demand  curve  facing  one  supplier   ○ Horizontal  line  at  the  market  price   ○ Perfectly  elastic • Price  taker   ○ Firm  that  faces  a  given  market  price   § Its  quantity  supplied  has  no  effect  on  that  price   ○ Perfectly  competitive  firm  that  decides  to  produce   § Must  accept,  or  "take  '  the  market  price   • Perfectly  competitive  situation  demand  curve  is  horizontal   • Maximize  economic  profit   ○ Increase  production  as  long  as  each  additional  unit  adds  more  to  TR  than   TC ○ Perfectly  competitive  firm  that  decides  to  produce   § Must  accept,  or  "take  '  the  market  price   • Perfectly  competitive  situation  demand  curve  is  horizontal   • Maximize  economic  profit   ○ Increase  production  as  long  as  each  additional  unit  adds  more  to  TR  than   TC • Golden  rule  of  profit  maximization   ○ to  maximize  profit  or  minimize  loss ○ Produce  the  quantity  at  which  MR=MC § Expand  output  if  MR>MC § Stop  before  MC>MR • Total  cost,  TC=  FC+VC if  shut  down  in  short  run:  pay  fixed  cost   • If  TC<TR:  economic  loss ○ Produce  if  TR>VC  (P>AVC)   § Revenue  covers  variable  costs  and  a  portion  of  fixed  cost § Loss<fixed  cost   ○ Shut  down  if  TR<VC(P<AVC) § Loss=FC Review  of  test   In  perfect  competition  what  does  cooperation  have  no  control  over -­‐Market   price  


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