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ECN212 Week 04 Note

by: Phoebe Chang

ECN212 Week 04 Note ECN 212

Marketplace > Business > ECN 212 > ECN212 Week 04 Note
Phoebe Chang
GPA 4.28

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Price Elasticity of Demand Price Elasticity of Supply Cross Price Elasticity Income Elasticity Demand Function Calculations Customer Surplus
William Foster
Class Notes
economic, demand, supply, surplus, elasticity, calculation, Math, Income
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This 5 page Class Notes was uploaded by Phoebe Chang on Saturday February 6, 2016. The Class Notes belongs to ECN 212 at a university taught by William Foster in Spring 2016. Since its upload, it has received 43 views.

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Date Created: 02/06/16
ECN212Market,CalculationsandMeanings SpringSEMESTER2016 Professor:Dr.WilliamFoster EliteNotetaker:Phoebe( 1. Markets  ○ A market includes supply and demand for a product  ○ Equilibrium (Pe / P*)  ■ Where demand and supply cross each other on price and quantity graph  ■ Same quantity supplied and demanded  ○ Excess Supply  ■ More quantity supplied than demanded (XS)  ■ “Buyers’ market"  ○ Excess Demand  ■ More quantity demanded than supplied (XD)  ○ In Free Market  ■ Shortage = higher price  ■ Surpluses = lower price  ○ Situations  ■ The law of marginal utility  ● A person will stop consuming to a certain point after increasing the  consumption rate (all­you­can­eat buffet)  ■ Market Price =/ Equilibrium Price  ● Seller want to sell more = Market price > Equilibrium price  ● Buyers want to buy more = Market price < Equilibrium price            1 2. Shifting (Same in Equilibrium line, different price and quantity)  ○ In Demand  ■ Left: Lower Equilibrium price and quantity  ■ (demand less, provide less on P*)  ■ Right: Higher Equilibrium price and quantity  ■ (demand more, provide more on P*)  ○ In Supply  ■ Left: Higher Equilibrium price / Lower Equilibrium quantity    ■ (provide less, demand more on P*)  ■ Right: Lower Equilibrium price  / Higher equilibrium quantity   ■ (provide more, demand less on P*)    3. Price Elasticity of Demand  ○ Percentage change of demand / Percentage change of price  ○ (Demand difference / Demand average) / (Price difference / Price difference  average)  ○ It’s alwaynegative  ○ Meaning  ■ Elastic: absolute value >1  ● Price increases, demand decreases  ● Fall in price = increase in total revenue = elastic part of demand curve  ● Top half of the slope  ■ Inelastic: absolute value  <1  ● Price increases, demand doesn’t change much  ● E.g. health requirements, addictions  ● Bottom half of the slope  ■ Unit Elastic: absolute =1  ● In the middle of the slope  ■ Perfectly Elastic: = negative infinite  ● Straight horizontal line  ● When a lot of people sell the same thing  ■ Perfectly Inelastic: =0  ● Straight vertical line  2 ● The demand doesn’t change no matter what’s the price  ■ Description  ● Perfectly inelastic → Perfectly elastic = demand become more elastic  ● Perfectly elastic → perfectly inelastic = demand become more  inelastic    4. Price Elasticity of Supply  ○ Percentage change of supply / Percentage change of price  ○ (Supply difference / Supply average) / (Price difference / Price difference average)  ○ It’s alwayspositive  ○ Meaning  ■ Elastic: absolute value >1  ● Price increases, demand decreases  ■ Inelastic: absolute value  <1  ● Price increases, demand doesn’t change much  ● E.g. health requirements, addictions  ■ Unit Elastic: absolute =1    5. Cross Price Elasticity  ○ When you are having two goods  ○ Percentage change of demand i / Percentage change of price j  ○ (Demand difference / Demand average) / (Price difference / Price difference  average)  ○ Meaning  ■ Substitutes: value > 0 (positive)  ● i goes down when j goes up  ■ Complements: value < 0 (negative)  ● i goes down when j goes down too        6. Income Elasticity  ○ Percentage change of demand / Percentage change of income  3 ○ (Demand difference / Demand average) / (Income difference / Income difference  average)  ○ Meaning  ■ Normal Good: value > 0 (positive)  ● The more you earn, the more you buy  ■ Inferior Good: value < 0 (negative)  ● The more you earn, the less you buy  ■ Income ↑ / Work ↑ = income effect   ● work less since you are richer  ■ Income ↑ / Work ↑ = substitution effect  ● work more since leisure time is opportunity cost                              5. Demand Function Calculations 4 Qa = 945 − 29Pa + 10Pb − 0.001I   Pa = $5.65 Pb = $8.96 I = 23459  Pb changes to $4.30 / What is the change in demand of good A?  (4.30 − 8.96) × 10 =− 46.6  (new price​  ­ old price provided) x Coefficient = Answer  Pb $ x Pb Coefficient = Qa Answer  Pb Coefficient = Positive = ​Substitution  Pb Coefficient = Negative = ​ Complementary        6. Customer Surplus Qd = 350 − 20P  P = $5.90     (530 × 3.56) ÷ 2 = $943.4  (Quantity x Price) / 2 = Consumer Surplus (unit: dollars)  5


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