ECN212 Week 04 Note
Popular in Microeconomics
Popular in Business
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.
Reviews for ECN212 Week 04 Note
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 02/06/16
ECN212Market,CalculationsandMeanings SpringSEMESTER2016 Professor:Dr.WilliamFoster EliteNotetaker:Phoebe(email@example.com) 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
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'