ECON 110: Week 6 Notes
ECON 110: Week 6 Notes ECON 110
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This 3 page Class Notes was uploaded by Connor Workman on Tuesday February 16, 2016. The Class Notes belongs to ECON 110 at Brigham Young University taught by Professor Arden Pope in Winter 2016. Since its upload, it has received 14 views. For similar materials see Principles of Economics in Economcs at Brigham Young University.
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Date Created: 02/16/16
ECON 110 KEY o <L1>= Lecture 1, </L1>= End of Lecture 1 o <L2>= Lecture 2, </L2>= End of Lecture 2 o * = Important for exams/quizzes. o <L15> Supply and Demand curves We take our supply and demand curves that we generated from our producer and consumer theory, and put them on the same graph. You can see the graph on the bottom right showing surpluses and shortages. Surpluses occur when the supply is larger than the demand, and shortages will occur when the demand is larger than the supply. The equilibrium is the point where they intersect. Shifts (Comparative Statics) When an incident occurs where the demand for a good goes up (price of substitute increase, ect), the demand shifts out. When an incident occurs that lowers demand (price of compliment goes up, ect), the demand shifts in. o </L15> o <L16> The Demand Curve Conceptually, it is how much you would be willing to pay for each extra shirt. The first shirt, you would be willing to pay several hundred if not a thousand dollars (modesty issues). For the second, you would be willing to pay significantly less. This pattern continues. The equilibrium is where you will buy a shirt if you already have a significant number of shirts. A Consumer Surplus is the difference between how much you want to pay and how much you do pay for your shirt (for example, if the equilibrium price is $15, and you are willing to buy a shirt for $1000, the consumer surplus is $985). Graphically, it is the area of the supply-demand curve from the y-axis to the demand curve (limited by price). A Producer Surplus is the difference between how much you want to produce and how much you’re currently producing. The equilibrium point is coincidentally the point where consumer and producer surplus equal each other out the most. The sum of the producer and consumer surplus that isn’t being cancelled out because equilibrium is not reached is called deadweight loss. o </L16> o <L17> Elasticity Think of elasticity of a rubber band and a piece of chalk. A rubber band is much more elastic (it stretches a ton before it breaks) than a piece of chalk (barely stretches at all). To calculate elasticity, the concept is the change in length divided by the change in the y-axis over the change in the x-axis. Percent change in length divided by percent change in weight you put on the rubber band. You can calculate elasticity at a given point and at two different points. You just have to make sure to calculate the AVERAGE of each axis and not indefinite measurement. Price Elasticity of Demand: Percent change in Quantity/Percent change in Price. The slope of a line DOES NOT equal the elasticity. Elasticity changes because it is the percent change. When it equals the slope (1), it is unit elastic. o </L17>
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