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Econ 101 Lecture 5 Notes

by: Samantha Shea

Econ 101 Lecture 5 Notes ECON 201

Samantha Shea

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These notes cover what was talked about in class on Monday, September 19th.
Micro Economics
Professor Liedholm
Class Notes
Microeconomics, Lecture Notes, elasticity
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This 2 page Class Notes was uploaded by Samantha Shea on Monday September 19, 2016. The Class Notes belongs to ECON 201 at Michigan State University taught by Professor Liedholm in Fall 2016. Since its upload, it has received 3 views. For similar materials see Micro Economics in Microeconomics at Michigan State University.

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Date Created: 09/19/16
Lecture  5  Notes Monday,  September   19,  201612:35  PM • Steps  in  Thinking  about  Shocks 1. Does  it  shift  Demand  or  Supply? 2. Does  it  shift  to  the  right  or  to  the  left? 3. Use  Demand  and  Supply  Diagram  to  see  new  Price  and  Quantity • An  increase  in  Demand  (shift  to  right)  means  increase  in  price  and  increase  in   quantity  supplied • What  is  the  effect  on  tuition  and  enrollment  of  an  increase  in  faculty  salaries? ○ Tuition  increases  and  enrollment  falls • Classes  at  LCC  are  inferior,  a  decrease  in  income  causes  demand  to  increase.   This  creates  an  excess  demand  and  price  tends  to  rise. Elasticity • Measures  the  one  variable   responsivenessto  changes  in  another  variable   • You  can  compute  the  elasticity  between  any  two  variables ○ Price  elasticity  of  demand ○ Income  elasticity  of  demand ○ Cross  price  elasticity  of  demand ○ Elasticity  of  supply • Price  elasticity  of  demand :  measures  the  responsiveness  of  quantity  demanded   to  changes  in  a  good's  own  price ○ The  price  elasticity  of  demanp  ercent  change  in  quantity   demandeddivided  by  the  percent  change  in  pricethat  caused  the  change   in  quantity  demanded • Terms  to  learn ○ Demand  is  Elasticwhen  the  numerical  value  of  elasticity  is  greater  than  1 ○ Demand  is  inelastic  when  the  numerical  value  of  elasticity  is  less  than  1 ○ Demand  is  unit  elastic when  the  numerical  value  of  elasticity  equals  1 • Determinants  of  Demand  Elasticity 1. The  more  substitutes  there  are  available  for  a  good,  the  more  elastic  the   demand  for  it  will  tend  to  be 2. The  narrower  (smaller)  the  market  boundaries,  the  more  elastic  the   demand  will  tend  to  be ○ Product  market  boundaries ○ Geographic  market  boundaries 3. The  longer  the  period  of  time  the  more  elastic  the  demand  will  tend  to  be. 2. The  narrower  (smaller)  the  market  boundaries,  the  more  elastic  the   demand  will  tend  to  be ○ Product  market  boundaries ○ Geographic  market  boundaries 3. The  longer  the  period  of  time  the  more  elastic  the  demand  will  tend  to  be. ○ The  shorter  the  period  of  time,  the  lower  the  price  elasticity  of   demand. • Price  Elasticity   -­‐ Gasoline ○ Short  run  elasticity-­‐ 0.2 ○ Long  run  elasti   0.5


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