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EC Lecture 7 Week 5 Chapter 6

by: Danielle Linska

EC Lecture 7 Week 5 Chapter 6 EC 201

Marketplace > Michigan State University > EC 201 > EC Lecture 7 Week 5 Chapter 6
Danielle Linska

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About this Document

These notes cover elasticity, graphs, price ceilings, and price floors
Intro to Microeconomics
C. Liedholm
Class Notes
Econ, Economics, Microeconomic, Microeconomics, #demandcurve #supplycurve #demandshifters #supplyshifters #demandfunction #marketequilibrium #surplus #pricefloor #priceceiling
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This 5 page Class Notes was uploaded by Danielle Linska on Monday September 26, 2016. The Class Notes belongs to EC 201 at Michigan State University taught by C. Liedholm in Fall 2016. Since its upload, it has received 7 views.


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Date Created: 09/26/16
Lecture  7  Week  5  Chapter  6 Monday,  September   26,  2016 12:40  PM Coming  Attractions:   • Problem  Set  #1  is  Due  September  29th • A-­‐O:  107  South  Kedzie  Midterm  Exam   • Review  Session  -­‐ October  3rd  Monday  (5  PM)  105  S.  Kedzie ○ October  4th  -­‐ 9  AM  Liedholm   • Next  Weeks  Practice  Exam   Review:   • If  elastic  demand,  price  and  total  revenue   INVERSELY  related. • If  inelastic  demand  (less  than  1),  price  and  total  revenue   DIRECTLY  related. Topics  for  this  session   • Elasticity  and  graphs   • Price  ceilings  and  price  floors   Price  Elasticity  and  Demand  Curves E=1 E=  100 E  =  Infinity   • Elasticity  and  slopea  re  NOT  the  same  thing • In  Symbol  Form:   • In  Symbol  Form:   Slope • Total  revenue  is  area  within  the  rectangle  of  the  quantity  and  price   • On  a  straight  line  demand  curve,  total  revenue  is  maximized  when, ○ -­‐ the  price  elasticity  of  demand  is  unitary  elastic   Price  Ceilings,  Price  Floors   • Price  Ceiling  -­‐    a  legal  maximum on  the  price  at  which  a  good  can  be  sold. ○ Bindingp   rice  ceiling   -­‐ a  price  ceiling  setbelowthe  equilibrium  price § Prevents  the  price  from  going  to  the  roof   ○ Price  cant  rise  above  this  level,  so  there  is  always  a   shortage  (excess  demand)   • Examples:  Rent   • Price  Floor  -­‐ a  legal  minimum  on  the  price  at  which  a  good  can  be  sold.   Bindingprice  floor ○ § A  price  floor  set the  equilibrium  price ○ Prices  can't  fall  below  this  level  so  there  is  always  a   surplus  (excess  supply) ○ A  non-­‐binding  price  floor  would  be  below  the  equilibrium ○ Example:  agriculture  in  the  united  states Justification:  special  dispensation  to  farmers § □ Large  price  fluctuations   § Results:   □ Prices  too  high □ Encourages  overproduction  of  agricultural  products   □ Farmer  revenue  increases  if  inelastic  demand   □ Surplus  either  given  away  or"umped"  on  international  market □ Providing  assistance  to   "family  farms"   • In  Symbol  Form:   Slope • Total  revenue  is  area  within  the  rectangle  of  the  quantity  and  price   • On  a  straight  line  demand  curve,  total  revenue  is  maximized  when, ○ -­‐ the  price  elasticity  of  demand  is  unitary  elastic   Price  Ceilings,  Price  Floors   • Price  Ceiling  -­‐    a  legal  maximum on  the  price  at  which  a  good  can  be  sold. ○ Bindingp   rice  ceiling   -­‐ a  price  ceiling  setbelowthe  equilibrium  price § Prevents  the  price  from  going  to  the  roof   ○ Price  cant  rise  above  this  level,  so  there  is  always  a   shortage  (excess  demand)   • Examples:  Rent   • Price  Floor  -­‐ a  legal  minimum  on  the  price  at  which  a  good  can  be  sold.   Bindingprice  floor ○ § A  price  floor  set the  equilibrium  price ○ Prices  can't  fall  below  this  level  so  there  is  always  a   surplus  (excess  supply) ○ A  non-­‐binding  price  floor  would  be  below  the  equilibrium ○ Example:  agriculture  in  the  united  states Justification:  special  dispensation  to  farmers § □ Large  price  fluctuations   § Results:   □ Prices  too  high □ Encourages  overproduction  of  agricultural  products   □ Farmer  revenue  increases  if  inelastic  demand   □ Surplus  either  given  away  or"umped"  on  international  market □ Providing  assistance  to   "family  farms"  


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