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by: Norberto Miller


Norberto Miller
GPA 3.77


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Class Notes
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This 14 page Class Notes was uploaded by Norberto Miller on Thursday October 22, 2015. The Class Notes belongs to GEOL 100 at University of California Santa Barbara taught by Staff in Fall. Since its upload, it has received 14 views. For similar materials see /class/227003/geol-100-university-of-california-santa-barbara in Geology at University of California Santa Barbara.




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Date Created: 10/22/15
Market Demand cont Chapter 15 Outline o Deriving market demand from individual demands done 0 How responsive is qd to a change in price elasticity o What is the relationship between revenue and demand elasticity Clicker Vote When deriving market demand from individual demand curves we add them up A B C D Vertically Diagonally Horizontally It depends Demand Elailiciw Price Elasticity of Demand How sensitive is Dp to price 0 How much will quantity demanded change in response to a given price change think in terms of percents 0 Define price elasticity of demand 6 as A E i BE amp qu7 or pq times the slope of the demand curve 0 At a particular point on the demand curve 64 WP Demand Elailiciw Price Elasticity of Demand Example Workout 154 9 Demand for kitty litter In Dpm10007 p In m where p is price and m is income 0 Rewrite demand Dp7 m eloooe Pem meloooe P o What is the price elasticity of demand for kitty litter when 0 p2and m500 Differentiate to find 3 imem me P 7Dp m So p 5 WFDUW 77 P SOE2 O p33ndm500 63 O p4andm1500 64 Demand Ela Price Elasticity of Demand Demand curve slopes downward if lt 0 so 6 g 0 o lelgt1gt demand is elastic o lellt1gt demand is inelastic o lel 1gt demand is unit elastic Elastic Unit elastic 9 lt4 9 Inelastic 1 lt e lt a Bats Demand Ela Price Elasticity of Demand With linear demand q 20 7 p inverse pq 20 7 q 9 Above midpoint gt demand is elastic 0 Below midpoint gt demand is inelastic 0 At midpoint gt demand is unit elastic Price 20 Elastic Unit elastic 10 lnelastIc 10 20 Bats Demand Eia Price Elasticity of Demand b ISO elastic demand q ap bP b 1 47 1 7b HQ 0 dpia BQ p Oeiqdpi a Oieib Price Elasticity b Bats Demand Ela Other Elasticities Suppose F FX7 y o How sensitive is F to a change in X o Elasticity of F wrt X or X elasticity of F is given by x E FXy 8X 0 Example income elasticity of demand How sensitive is D to a change in income m 3D 6 7 DPgtmm em 2 O gt normal good D 0 0 n em lt O gt inferior good 1 El Other Elasticities Example Workout 154 continued 0 Recall that In Dp7 m 1000 7 p In In so Dp7 m meloooe P o What is the income elasticity of demand 0 Differential wrt m g e1oooeip DP7m 8m m rn DPgtm 7 Dpm m 7 1 a Interpretation ml by 1 gt D T 1 NO ml by 1 D T 1 06m Dumar Eiagiwrv Elasticity amp Revenue What happens to revenue when you change p 0 Revenue R pq 0 Change in revenue wrt p 8R 8q 7 7 1 1 8p p8pq qeq qe o How does a price increase change revenue 0 R T if demand is inelastic 2 R1 if demand is elastic R is unchanged if demand is unit elastic Elasticity amp Revenue Q What price maximizes revenue Elastic unit elastic Inelastic Eats ql50 ltgt 571 A The price at which demand is unit elastic Example Dp 40 7 2p Unit elasticity occurs at pa 6W7271gtp10 Marginal Revenue What happens to revenue when quantity q changes 0 Marginal Revenue 8R ap MR aiqiplq87q 1 E qap ppp1 pat 0 Example if e 712 then MR 7p lt 0 so reducing the quantity will increase revenue Marginal Revenue Linear demand pq a 7 bq inverse demand Price ElaStiC Unit elastic 9 lt1 6 1 Inelastic 1 lt e lt a Bats


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