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## Exam 2 Lec. 5

1 review
by: Karlee Castleberry

68

2

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# Exam 2 Lec. 5 Econ 2020

Karlee Castleberry
AU
GPA 3.1

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These notes cover almost the rest of the notes for exam 2! I had to leave 5 minutes early for a test, so the last few points we covered are missing. Sorry for the inconvenience!
COURSE
Principles of Economics: Microeconomics
PROF.
William M. Finck
TYPE
Class Notes
PAGES
3
WORDS
KARMA
25 ?

1 review
"perfect"
Becky Falgoust

## Popular in Principles of Economics: Microeconomics

This 3 page Class Notes was uploaded by Karlee Castleberry on Friday February 12, 2016. The Class Notes belongs to Econ 2020 at Auburn University taught by William M. Finck in Spring 2016. Since its upload, it has received 68 views. For similar materials see Principles of Economics: Microeconomics in Business at Auburn University.

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## Reviews for Exam 2 Lec. 5

perfect

-Becky Falgoust

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Date Created: 02/12/16
Exam 2 Lecture 5 [definition formula relationships between variables]  Lecture 5- Elastic vs. Inelastic o  o Determinants of price elasticity of demand  1. Number of Substitutes-  number of subs and elasticity move together  2. Time in Which to Make the Purchase-  time and elasticity move together  3. Proportion of Income-  proportion and elasticity move together  4. Luxuries vs. Necessities-  need and elasticity move opposite o Total Revenue and Price Elasticity  Total revenue- money earned from selling goods and services; NOT the same as profit, which includes costs  TR = Price * Quantity   When price falls, Q rises. What happens to TR? o It depends on elasticity. TR loss ; big TR gain ; tiny TR gain Ex:  P1 = \$1 Q1 = 150  P2 = \$1.25 Q2 = 100  Find E (using midpoint) and ∆TR d (150 – 100) / ((150+100)/2)  E d --------------------------------= 0.4 / 0.222 = 1.80 (1.25 – 1) / ((1.25+1)/2)  TR1 = 1*150  TR2 = 1.25 *100 = \$125  ∆TR = TR2 – TR1 = -\$25  Summary: o E d 1: price and TR move opposite 2 o E < 1: price and TR move together d  Price elasticity along a linear demand curve o o  elasticity decreases as quantity increases  at the midpoint:  Ed= 1  TR is maximized  Other types of elasticity’s: o 1. Price elasticity of supply  when supply is inelastic (Steep) a change in demand will cause a large change in equilibrium price o 2. 3

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