Econ 101 Lecture 5 Notes
Econ 101 Lecture 5 Notes ECON 201
Popular in Micro Economics
Popular in Microeconomics
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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