×

### Let's log you in.

or

Don't have a StudySoup account? Create one here!

×

or

by: Matt Cutler

21

0

3

# EC 111- Week 3 notes Econ 111

Matt Cutler
UA
GPA 4.0

Enter your email below and we will instantly email you these Notes for Macroeconomics

(Limited time offer)

Unlock FREE Class Notes

Everyone needs better class notes. Enter your email and we will send you notes for this class for free.

Week 3 Notes on Equilibrium and Elasticity
COURSE
Macroeconomics
PROF.
Kent 0. Zirlott
TYPE
Class Notes
PAGES
3
WORDS
CONCEPTS
Economics
KARMA
Free

## Popular in Department

This 3 page Class Notes was uploaded by Matt Cutler on Sunday February 7, 2016. The Class Notes belongs to Econ 111 at University of Alabama - Tuscaloosa taught by Kent 0. Zirlott in Fall 2016. Since its upload, it has received 21 views.

×

## Reviews for EC 111- Week 3 notes

×

×

### What is Karma?

#### You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 02/07/16
Equilibrium Monday, February 1, 2016 3:41 PM 1. Changes in Equilibrium a. Decide whether event shifts S curve, D curve, or both. b. Decide in which direction curve shifts. c. Use supply-demand diagram to see how the shift changes EQ P and Q. i. Ex: market for hybrids 1) Increase in price of gas a) Causes shift right in demand curve for hybrids b) Price and quantity go up 2) New technology reduces cost of producing hybrid cars. a) Supply curve shifts right b) Price falls, quantity rises 3) Price of gas rises AND new technology reduces production costs a) Both curves shift right b) Quantity rises, price is uncertain (because we don’t know how far the curves shifted) ii. Market for Ice Cream 1) Fall in the price of frozen yogurt a) Frozen yogurt is a substitute so demand curve shifts b) Demand curve shifts left c) Price and quantity drop 2) Fall in milk prices When S and D are shifting in the same direction; a) Input price: supply shift price will be unknown. b) Supply curve shifts right When S and D are shifting in opposite directions; quantity will be unknown c) Price falls, quantity rises 3) Fall in price of frozen yogurt AND fall in milk prices a) D shifts left, S shifts right b) Price falls, effect on Q is unknown Elasticity Wednesday, February 3, 2016 3:32 PM • Definition:Elasticity is a numerical measure of the responsiveness of Q or Q to one of its determinants • Basic idea: Elasticity measures how much one variable responds to changes in another variable. ○ One type of elasticity measures how much demand for your websites will fall if you raise your price. 1. Price elasticity of Demand ○ Price elasticity of demand= Percentage change in Quantity Demand/ Percentage Change in Price  Ex: price rises by 10%; Q falls by 15%  Price elasticity of demand= 15%/10%=1.5 (pure number, no units)  Always take the absolute value for elasticity of demand. ○ Percent change= (New-old)/old: CANNOT use <---- for elasticity ○ Midpoint method: (New-Old)/ Average= percentage change for Elasticity!! ○ Slope and elasticity are related but not the same thing ○ The flatter the curve, the bigger the elasticity ○ The steeper the curve, the smaller the elasticity Cutler, Matthew R at 2/3/20163:51 PM a. Five different classifications of D curves i. Elastic demand 1) Curve: relatively flat 2) Price sensitivity: relatively high (means Quantity demand changes a lot, more than price change) 3) Elasticity: greater than 1 ii. Inelastic demand 1) Curve: relatively steep 2) Price sensitivity: relatively low (Quantity only changes a little bit, changes less than price) 3) Elasticity: less than 1 iii. Unit elastic 1) Percentage change in price EQUALS the percentage change in quantity 2) Elasticity of 1 iv. Perfectly inelastic demand 1) Curve: Vertical 2) Price sensitivity: none (Q changes by 0% Price changes) 3) Elasticity: 0 v. Perfectly elastic demand (Demand curve for perfect competition: commercial fisherman, farmers) 1) Curve: Horizontal 2) Price sensitivity: Extreme (Q changes when price stays the same) 3) Elasticity: infinity b. Determinantsof Elasticity of Demand (in order of how powerful they are) i. Elasticity is higher when close substitutes are available. ii. Price elasticity is higher for narrowly defined goods than broadly defined ones 1) Ex: lucky brand jeans vs clothing (higher for jeans) iii. Price Elasticity is higher for luxuries than for necessities 1) Ex: Cruise vs insulin (higher for cruise) iv. Price elasticity is higher in the long run than the short run 1) Ex: gasoline in the short run vs gas in the long run (gas in long run is higher because more choices) c. Price Elasticity and Total Revenue  Revenue= Price x Quantity  Price effect= more price per unit  Price effect= more price per unit  Quantity effect= less units sold  Elasticity will tell you which one is bigger i. If demand is elastic (greater than 1) 1) A price increase causes revenue to fall (lost revenue due to lower Q exceeds increase revenue due to higher P) ii. If demand is inelastic (less than 1) 1) A Price increase causes revenue to increase (Price effect is larger than the quantity effect)

×

×

### BOOM! Enjoy Your Free Notes!

×

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'

## Why people love StudySoup

Jim McGreen Ohio University

#### "Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."

Jennifer McGill UCSF Med School

#### "Selling my MCAT study guides and notes has been a great source of side revenue while I'm in school. Some months I'm making over \$500! Plus, it makes me happy knowing that I'm helping future med students with their MCAT."

Bentley McCaw University of Florida

#### "I was shooting for a perfect 4.0 GPA this semester. Having StudySoup as a study aid was critical to helping me achieve my goal...and I nailed it!"

Parker Thompson 500 Startups

#### "It's a great way for students to improve their educational experience and it seemed like a product that everybody wants, so all the people participating are winning."

Become an Elite Notetaker and start selling your notes online!
×

### Refund Policy

#### STUDYSOUP CANCELLATION POLICY

All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email support@studysoup.com

#### STUDYSOUP REFUND POLICY

StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here: support@studysoup.com

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to support@studysoup.com