# price elasticity of demand; cross-price elasticity of demand; income elasticity of demand; price elasticity of supply.

Save this PDF as:

Size: px
Start display at page:

Download "price elasticity of demand; cross-price elasticity of demand; income elasticity of demand; price elasticity of supply."

## Transcription

1 Unit 3: Elasticity

2 In accorance with the APT rogramme the objective of the lecture is to hel You to comrehen an aly the concets of elasticity, incluing calculating: rice elasticity of eman; cross-rice elasticity of eman; income elasticity of eman; rice elasticity of suly.

3 Require reaing Mankiw, N.G. Princiles of Microeconomics. 6th eition. South-Western Chater 5. Elasticity an Its Alication. Begg, D., R.Dornbusch, S.Fischer. Economics. 8th eition. McGraw Hill Chater 4. Elasticities of eman an suly.

4 Questions to be revise Deman scheule an the law of eman; Factors of eman, comlements an substitutes; Suly scheule an the law of suly; Market equilibrium: welfare asects of government controls.

5 Price Elasticity of Deman Percentage change in quantity emane that results from one ercent change in rice:

6 Price Elasticity of Deman Price elasticity may be efine with resect to infinitesimal changes in rice:

7 Elasticity an Sloe of a Deman Curve Equal elasticities an ifferent sloes

8 Elasticity an Sloe of a Deman Curve Different elasticities an equal sloes

9 Elasticity an Sloe of a Deman Curve Consier an arbitrary function: y=f(x) Elasticity is a imension free measure of change:

10 Elastic an Inelastic Deman Elastic: 1 Unit - elastic: 1 Inelastic: 1

11 Unit tax: examle (APT 2009) (a) Calculate the roucer surlus before tax. (b) Now assume a er-unit tax of \$2 is imose whose imact is shown in the grah above. i. Calculate the amount of tax revenue ii. What is the after-tax rice that the sellers now kee? iii.calculate the roucer surlus after tax. (c) Is the eman elastic, inelastic, or unit elastic between the rices of \$5 an \$6. Exlain.

12 Price elasticity of eman: examle (APT 2010) The table below gives the quantity of goo X emane an sulie at various rices. Price (ollars) Quantity Demane (units) Quantity Sulie (units) (i) Is the eman for goo X relatively elastic, relatively inelastic, unit elastic, erfectly elastic, or erfectly inelastic when the rice ecreases from \$30 to \$20? Exlain.

13 Total Revenue an Marginal Revenue Total Revenue = Total Exeniture = P(Q)Q Marginal Revenue: Marginal Revenue with infinitesimal changes in quantity of the goo:

14 Price Elasticity of Deman, Total an Marginal Revenue If, Total revenue is an increasing function of quantity of the goo: when Q goes u, TR grows as well; when Q goes own, TR also eclines.

15 Price Elasticity of Deman, Total an Marginal Revenue If, Total revenue is a ecreasing function of quantity of the goo: when Q goes u, TR eclines; when Q goes own, TR grows.

16 Price Elasticity of Deman, Total an Marginal Revenue If, Total revenue is at the maximum.

17 TR Elasticity of linear eman an revenues of roucers: variations of sales TR rice-elastic eman rice-inelastic eman E E P, MR 0 E E 1 E 0 a Q MR D 0 a/2b a/b Q

18 Elasticity of linear eman an revenues of roucers: variations of sales P a E E 1 rice-elastic eman MR D E E 0 rice-inelastic eman E 0 a/2b a/b Q E E TR E 1 q

19 Price Elasticity of Deman an Total Exeniture Total Exeniture = Revenue = P Q(P).

20 Price Elasticity of Deman an Total Exeniture (cont ) Total exeniture is highest when 1. If eman is Elastic: 1 Inelastic: 1 A rice increase will reuce total exeniture increase total exeniture A rice reuction will increase total exeniture reuce total exeniture

21 Elasticity of linear eman an revenues of roucers: variations of rice P a E E 1 E 1 rice-elastic eman E 1 TR 1 0 E a/2 0 E 1 a/2b 1 E 0rice-inelastic eman E 0 a/b Q

22 Elasticity of linear eman scheule an revenues of roucers: grahical exosition P E a E 1 E 1 rice-elastic eman E 1 TR 1 0 E a/2 0 E 1 a/2b 1 E 0rice-inelastic eman E 0 a/b Q E E TR E 1

23 Cross-Price Elasticity of Deman Cross-rice elasticity of eman the ercentage by which quantity emane of the first goo changes in resonse to a 1 ercent change in the rice of the secon. Substitutes >0, Comlements <0 Markets for substitutes P x P y D y S y E 1 E Q x Q y

24 Cross-Price Elasticity of Deman Cross-rice elasticity of eman the ercentage by which quantity emane of the first goo changes in resonse to a 1 ercent change in the rice of the secon. Substitutes >0, Comlements <0 Markets for comlementary goos P x P y D y S y E 0 E Q x Q y

25 Cross-rice elasticity of eman: examle (APT 2009) Assume that the cross-rice elasticity of eman between eanuts an bananas is ositive. A wiesrea ecease has estroye the banana cro. What will haen to the equilibrium rice an quantity of eanuts in the short run? Exlain.

26 Income Elasticity of Deman Income elasticity of eman the ercentage by which quantity emane of the first goo changes in resonse to a 1 ercent change in income. Normal goos: E I >0; inferior goos: E I <0.

27 Income elasticity of eman: examle (APT 2010) Assume that the income elasticity of eman for goo Y is -2. Using a correctly labele grah of the market for goo Y, show the effect of a significant increase in income on the equilibrium rice of goo Y in the short run.

28 Price Elasticity of Suly - the ercentage change in quantity sulie that occurs in resonse to a 1 ercent change in rice. Q P P Q Always ositive..

29 Determinants of Price Elasticity of Suly - Flexibility an mobility of inuts; - Ability to rouce substitute inuts; - Time: short-run vs. long-run.

30 Price elasticity of eman an suly : examle (APT 2010) The table below gives the quantity of goo X emane an sulie at various rices. Price (ollars) Quantity Demane (units) Quantity Sulie (units) (i) Is the eman for goo X relatively elastic, relatively inelastic, unit elastic, erfectly elastic, or erfectly inelastic when the rice ecreases from \$30 to \$20? Exlain. (ii) Is the suly of goo X relatively elastic, relatively inelastic, unit elastic, erfectly elastic, or erfectly inelastic when the rice ecreases from \$30 to \$20? Exlain.

31 Elasticity of suly an eman an tax buren of consumers an roucers Incience of a tax escribes who eventually bears the buren of it. Let s calculate tax buren of consumers an roucers to rove that it eens on the relative elasticities of eman an suly: where T c is the tax buren of consumers, T tax buren of roucers, T is the total tax revenue of the government

32 Elasticity of suly an eman an tax buren of consumers an roucers Use the exressions of elasticities of eman an suly to get: The relative tax buren of consumers an roucers is the inverse ratio of absolute values of corresoning elasticities, i.e. to the negative of the ratio of elasticities of suly an eman.

33 Elasticity of suly an eman an tax buren of consumers an roucers The more elastic eman an the less elastic suly curves are the greater is the share of the tax levie on roucers as comare to that of consumers:

34 Tax incience an rice elasticity of eman an suly : examle (APT 2010) The table below gives the quantity of goo X emane an sulie at various rices. Price (ollars) Quantity Demane (units) Quantity Sulie (units) (i) Is the eman for goo X relatively elastic, relatively inelastic, unit elastic, erfectly elastic, or erfectly inelastic when the rice ecreases from \$30 to \$20? Exlain. (ii) Is the suly of goo X relatively elastic, relatively inelastic, unit elastic, erfectly elastic, or erfectly inelastic when the rice ecreases from \$30 to \$20? Exlain. (iii)if a er-unit tax is imose on goo X, how is the buren of the tax istribute between the buyers an sellers of goo X?

35 Tax incience an rice elasticity of eman: examle (APT 2008) Assume that consumers always buy 20 units of goo R each month regarless of its rice. (i) What is the numerical value of the rice elasticity of eman for goo R? (ii) If the government imlements a er-unit tax of \$2 on goo R, how much of the tax will the seller ay?

### Unit 3. Elasticity Learning objectives Questions for revision: 3.1. Price elasticity of demand

Unit 3. Elasticity Learning objectives To comrehen an aly the concets of elasticity, incluing calculating: rice elasticity of eman; cross-rice elasticity of eman; income elasticity of eman; rice elasticity

### Price Elasticity of Demand

rice Elasticity of Demand Demand A B The percentage change in the quantity demanded given...... a one percent change in the price. rinciples of Microeconomics & rinciples of Macroeconomics: Ch. 5 First

### Chapter Three. Topics To Be Covered

Chater Three Alying the Sulyand-Demand Model Toics To Be Covered How the shaes of demand and suly curves matter? Sensitivity of quantity demanded to rice. Sensitivity of quantity sulied to rice. Long run

### Price Elasticity of Demand MATH 104 and MATH 184 Mark Mac Lean (with assistance from Patrick Chan) 2011W

Price Elasticity of Demand MATH 104 and MATH 184 Mark Mac Lean (with assistance from Patrick Chan) 2011W The rice elasticity of demand (which is often shortened to demand elasticity) is defined to be the

### Chapter 4: Elasticity

Chapter : Elasticity Elasticity of eman: It measures the responsiveness of quantity emane (or eman) with respect to changes in its own price (or income or the price of some other commoity). Why is Elasticity

### Chapter 9 Profit Maximization

Chater 9 Profit Maximization Economic theory normally uses the rofit maximization assumtion in studying the firm just as it uses the utility maximization assumtion for the individual consumer. This aroach

### Elasticity. Price elasticity of demand

lasticity Why cheap beer gives you gonorrhea, and other stories rice elasticity of demand The price elasticity of demand of a good measures the responsiveness of the quantity demanded of the good to changes

### A scenario. Elasticity. Price Elasticity of Demand. Price Elasticity of Demand. Elasticity and its Application

5 Elasticity and its Application R I N C I L E O F ECONOMIC F O U R T H E I T I O N N. G R E G O R Y M A N K I W remium oweroint lides by Ron Cronovich 2008 update Modified by Joseph Tao-yi Wang 2008 outh-western,

### Chapter 4. Elasticity

Chapter 4 Elasticity -comparative static exercises in the supply and demand model give us the direction of changes in equilibrium prices and quantities -sometimes we want to know more we want to know about

### Chapter 6. Elasticity: The Responsiveness of Demand and Supply

Chapter 6. Elasticity: The Responsiveness of Demand and Supply Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 202 504 Principles of Microeconomics Elasticity Demand curve:

### Unit 7. Firm behaviour and market structure: monopoly

Unit 7. Firm behaviour and market structure: monopoly In accordance with the APT programme objectives of the lecture are to help You to: identify and examine the sources of monopoly power; understand the

### c 2009 Je rey A. Miron 3. Examples: Linear Demand Curves and Monopoly

Lecture 0: Monooly. c 009 Je rey A. Miron Outline. Introduction. Maximizing Pro ts. Examles: Linear Demand Curves and Monooly. The Ine ciency of Monooly. The Deadweight Loss of Monooly. Price Discrimination.

### PROBLEM SET#3 PART I: MULTIPLE CHOICE

1 PROBLEM SET#3 PART I: MULTIPLE CHOICE 1. In general, elasticity is a measure of a. the extent to which advances in technology are adopted by producers. b. the extent to which a market is competitive.

### Prof. Dr. Thomas Straubhaar. Wintersemester 2009/10 VORLESUNG. -VWL 1 - (Principles of Economics)

Universität Hamburg Prof. Dr. Thomas Straubhaar Wintersemester 009/0 VORLESUNG (-0.90) 0 90) Einführung in die Volkswirtschaftslehre -VWL - (Princiles of Economics) MODUL : Demand Alle Zuschauer der. Bundesliga

### ELASTICITY AND ITS APPLICATION

5 ELASTICITY AND ITS APPLICATION CHAPTER OUTLINE: I. The Elasticity of Demand A. Definition of elasticity: a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants.

### Class 4: Monopoly and Market Power. Power to affect market price or the ability to set price above marginal cost Monopoly power and monopsony power

Class 4: Monooly and Market Power. Market ower Power to affect market rice or the ability to set rice above marginal cost Monooly ower and monosony ower An examle of monosony ower: The big-3 and their

### 2 Price Elasticity of Demand

1 1.1 Goals of this class Goals of this class Expand on supply and demand: how much do quantities change in responses to: changes in price? changes in income? changes in price of related goods? Learn implications

### Two aspects of an elasticity are important: (1) whether it positive or negative and (2) whether it is greater than 1 or less than 1 in absolute value

Overview I. The Elasticity Concept - Own Price Elasticity - Elasticity and Total Revenue - Cross-Price Elasticity - Income Elasticity II. Demand Functions - Linear - Log-Linear II. Regression Analysis

### Market Definition, Elasticities and Surpluses

Sloan School of Management 15.010/15.011 Massachusetts Institute of Technology rofessors Berndt, Chapman, Doyle, and Stoker RECITATION NOTES #1 Market Definition, Elasticities and Surpluses Friday - September

### 2007 Thomson South-Western

Elasticity... allows us to analyze supply and demand with greater precision. is a measure of how much buyers and sellers respond to changes in market conditions THE ELASTICITY OF DEMAND The price elasticity

### Elasticities of Demand

rice Elasticity of Demand 4.0 rinciples of Microeconomics, Fall 007 Chia-Hui Chen September 0, 007 Lecture 3 Elasticities of Demand Elasticity. Elasticity measures how one variable responds to a change

### Microeconomics: Market Shocks & Producer/Consumer Surplus

HO 2207 (Economics) Learning Centre Microeconomics: Market hocks & roducer/consumer urplus hocks to supply and demand in a market equilibrium situation were discussed in the upply & emand worksheet. In

### a. Meaning: The amount (as a percentage of total) that quantity demanded changes as price changes. b. Factors that make demand more price elastic

Things to know about elasticity. 1. Price elasticity of demand a. Meaning: The amount (as a percentage of total) that quantity demanded changes as price changes. b. Factors that make demand more price

### MFP SET. Lecture 3 Surplus: Consumer & producer Elasticity & its applications MFP SET 2000 1

MFP SET Lecture 3 Surplus: Consumer & producer Elasticity & its applications MFP SET 1 Consumer surplus! Willingness to pay: the maximum amount that a consumer will pay for a good! Consumer surplus: the

### A graphical introduction to the budget constraint and utility maximization

EC 35: ntermediate Microeconomics, Lecture 4 Economics 35: ntermediate Microeconomics Notes and Assignment Chater 4: tilit Maimization and Choice This chater discusses how consumers make consumtion decisions

### Managerial Economics & Business Strategy Chapter 8. Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Managerial Economics & Business Strategy Chapter 8 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets I. Perfect Competition Overview Characteristics and profit outlook. Effect

### Module 2 Lecture 5 Topics

Module 2 Lecture 5 Topics 2.13 Recap of Relevant Concepts 2.13.1 Social Welfare 2.13.2 Demand Curves 2.14 Elasticity of Demand 2.14.1 Perfectly Inelastic 2.14.2 Perfectly Elastic 2.15 Production & Cost

### Chapter 4: Elasticity. McTaggart, Findlay, Parkin: Microeconomics 2007 Pearson Education Australia

Chapter 4: Elasticity Objectives After studying this chapter, you will be able to: Define, calculate, and explain the factors that influence the price elasticity of demand Define, calculate, and explain

### Jacob: If there is a tax, there is a dead weight loss; why do we speak of a social gain?

Microeconomics, sales taxes, final exam practice problems (The attached PDF file has better formatting.) *Question 1.1: Social Gain Suppose the government levies a sales tax on a good. With the sales tax,

### Elasticity and Its Application

Elasticity and Its Application Chapter 5 All rights reserved. Copyright 2001 by Harcourt, Inc. Requests for permission to make copies of any part of the work should be mailed to: Permissions Department,

### There are two different ways you can interpret the information given in a demand curve.

Econ 500 Microeconomic Review Deman What these notes hope to o is to o a quick review of supply, eman, an equilibrium, with an emphasis on a more quantifiable approach. Deman Curve (Big icture) The whole

### Practice Questions Week 3 Day 1

Practice Questions Week 3 Day 1 Figure 4-1 Quantity Demanded \$ 2 18 3 \$ 4 14 4 \$ 6 10 5 \$ 8 6 6 \$10 2 8 Price Per Pair Quantity Supplied 1. Figure 4-1 shows the supply and demand for socks. If a price

### Basic idea. Chapter 3: Elasticity. but how much? I. Price Elasticity of Demand. % change in Qd. equation. Qs holding other factors constant

Chapter 3: Elasticity rice elasticity demand supply Cross elasticity Income elasticity Basic idea We know when d s holding other factors constant but how much? if price doubles how much does d fall? by

### Elasticity. Definition of the Price Elasticity of Demand: Formula for Elasticity: Types of Elasticity:

Elasticity efinition of the Elasticity of emand: The law of demand states that the quantity demanded of a good will vary inversely with the price of the good during a given time period, but it does not

### Willingness to Pay for a Risk Reduction

The Economics of Climate Change C 75 Willingness to Pay for a Risk Reuction Sring 0 C Berkeley Traeger 5 Risk an ncertainty The Economics of Climate Change C 75 Back to Risk We will mostly treat the category

### 3. CONCEPT OF ELASTICITY

3. CONCET OF ELASTICIT The quantity demanded of a good is affected mainly by - changes in the price of a good, - changes in price of other goods, - changes in income and c - changes in other relevant factors.

### Chulalongkorn University: BBA International Program, Faculty of Commerce and Accountancy

Chulalongkorn University: BBA International Program, Faculty of Commerce and Accountancy 2900111 (Section 1) Chairat Aemkulwat Economics I: Microeconomics Spring 2015 Solution to Selected Questions: CHAPTER

### SUPPLY AND DEMAND : HOW MARKETS WORK

SUPPLY AND DEMAND : HOW MARKETS WORK Chapter 4 : The Market Forces of and and demand are the two words that economists use most often. and demand are the forces that make market economies work. Modern

### Monopoly vs. Compe22on. Theory of the Firm. Causes of Monopoly. Monopoly vs. Compe22on. Monopolis2c Markets P. Natural. Legal.

Monooly vs. Comeon Monooly Perfect Come,,on Theory of the Firm P Monooly s demand = Market demand (ΔQ P) P Firm s demand = Horizontal line ( Δ P does not change) Monoolisc Markets P d Q Monooly vs. Comeon

### SAMPLE FINAL. Part I - Multiple Choice Questions:

Part I - Multiple Choice Questions: SAMPLE FINAL 1. Which of the following is not a characteristic of a perfectly competitive market? a. Firms are price takers. b. Firms have difficulty entering the market.

### AP MICRO Week 4 Practice Quiz: M, 20

1 1. A marketing survey shows that gate receipts would increase if the price of tickets to a summer rock concert increased, even though the number of tickets sold would fall. What does this imply about

### Ch. 6 Lecture Notes I. Price Elasticity of Demand 4. CONSIDER THIS A Bit of a Stretch

Ch. 6 Lecture Notes I. Price Elasticity of Demand A. Law of demand tells us that consumers will respond to a price decrease by buying more of a product (other things remaining constant), but it does not

### 10 : Theory of Demand

10 : Theory of Demand 1 Recap from last session Change in Demand Supply, Law of Supply Market Equilibrium Change in Equilibrium 2 A Shift in Both Supply and Demand Price of Ice-Cream Cone Large increase

### How Does A Perfectly Competitive Market Reach Long Run Equilibrium?

How Does A erfectly Competitive Market Reach Long Run Equilibrium? Side-by-side graph for perfectly completive industry and firm. Is the firm making a profit or a loss? Why? S \$15 \$15 MR=D AVC D 5000 Industry

### Graph 1: Market equilibrium

ISSN 1314-74, Volume 9, 015 CONSUMER AND PRODUCER SURPLUS CHANGES AFTER TAXATION Fran Galetic Faculty of Economics and Business Zagreb, University of Zagreb, J.F. Kennedy square 6, 10000 Zagreb, Croatia

### Chapter 10 Market Power: Monopoly and Monosony Monopoly: market with only one seller. Demand function, TR, AR, and MR

ECON191 (Spring 2011) 27 & 29.4.2011 (Tutorial 9) Chapter 10 Market Power: Monopoly an Monosony Monopoly: market with only one seller a Deman function, TR, AR, an P p=a bq ( q) AR( q) for all q except

### Chapter 3 Quantitative Demand Analysis

Managerial Economics & Business Strategy Chapter 3 uantitative Demand Analysis McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved. Overview I. The Elasticity Concept

### Problem Set- Chapter 2 Solutions

roblem Set- Chapter 2 Solutions 1. Ch 2, roblem 2.1 The demand for beer in Japan is given by the following equation: d 700 2 N + 0.1I, where is the price of beer, N is the price of nuts, and I is average

### CASE FAIR OSTER 2012 Pearson Education, Inc. Publishing as Prentice Hall Prepared by: Fernando Quijano & Shelly Tefft

P R I N C I P L E S O F ECONOMICS T E N T H E D I T I O N CASE FAIR OSTER Prepared by: Fernando Quijano & Shelly Tefft of 3 Elasticity 5 CHAPTER OUTLINE Price Elasticity of Demand Slope and Elasticity

### Chapter 3. The Concept of Elasticity and Consumer and Producer Surplus. Chapter Objectives. Chapter Outline

Chapter 3 The Concept of Elasticity and Consumer and roducer Surplus Chapter Objectives After reading this chapter you should be able to Understand that elasticity, the responsiveness of quantity to changes

### A Simple Model of Pricing, Markups and Market. Power Under Demand Fluctuations

A Simle Model of Pricing, Markus and Market Power Under Demand Fluctuations Stanley S. Reynolds Deartment of Economics; University of Arizona; Tucson, AZ 85721 Bart J. Wilson Economic Science Laboratory;

### Chapter 4: Elasticity. Monday, June 28 Tuesday, June 29

Chapter 4: Elasticity Monday, June 28 Tuesday, June 29 price PERFECTLY INELASTIC SUPPLY 100 90 80 70 60 50 40 30 10 0 0 10 30 40 50 60 70 80 90 100 quantity S=60 =160-2P Quantity supplied doesn t depend

### Demand, Supply and Elasticity

Demand, Supply and Elasticity CHAPTER 2 OUTLINE 2.1 Demand and Supply Definitions, Determinants and Disturbances 2.2 The Market Mechanism 2.3 Changes in Market Equilibrium 2.4 Elasticities of Supply and

### Topics in Macroeconomics 2 Econ 2004

Topics in Macroeconomics 2 Econ 2004 Practice Questions for Master Class 2 on Monay, March 2n, 2009 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

### Imperfect Competition: Monopoly

Ierfect Coetition: Monooly New Toic: Monooly Q: What is a onooly? A onooly is a fir that faces a downward sloing deand, and has a choice about what rice to charge an increase in rice doesn t send ost or

### Elasticity: The Responsiveness of Demand and Supply

Chapter 6 Elasticity: The Responsiveness of Demand and Supply Chapter Outline 61 LEARNING OBJECTIVE 61 The Price Elasticity of Demand and Its Measurement Learning Objective 1 Define the price elasticity

### 17. Suppose demand is given by Q d = 400 15P + I, where Q d is quantity demanded, P is. I = 100, equilibrium quantity is A) 15 B) 20 C) 25 D) 30

Ch. 2 1. A relationship that shows the quantity of goods that consumers are willing to buy at different prices is the A) elasticity B) market demand curve C) market supply curve D) market equilibrium 2.

### Chapter 8 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Managerial Economics & Business Strategy Chapter 8 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All

### Unit 7. Firm behaviour and market structure: monopoly

Unit 7. Firm behaviour and market structure: monopoly Learning objectives: to identify and examine the sources of monopoly power; to understand the relationship between a monopolist s demand curve and

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MBA 640 Survey of Microeconomics Fall 2006, Quiz 6 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A monopoly is best defined as a firm that

### Consumer and Producer Surplus. Consumer and Producer Surplus. Consumer Surplus. Consumer Surplus. Consumer Surplus Individual consumer surplus

Consumer and Consumer and February 6, 2007 Reading: Chapter 6 Introduction Consumer surplus Producer surplus Efficiency and the gains from trade s 2 Introduction Connections to: Opportunity costs to consumers

### Examples on Monopoly and Third Degree Price Discrimination

1 Examples on Monopoly and Third Degree Price Discrimination This hand out contains two different parts. In the first, there are examples concerning the profit maximizing strategy for a firm with market

### 2011 Pearson Education. Elasticities of Demand and Supply: Today add elasticity and slope, cross elasticities

2011 Pearson Education Elasticities of Demand and Supply: Today add elasticity and slope, cross elasticities What Determines Elasticity? Influences on the price elasticity of demand fall into two categories:

### ECF1100 Microeconomics

ECF1100 Microeconomics Semester 2, 2015 Notes Textbook: Gans, King, Byford and Mankiw, Principles of Microeconomics 6th Edition, Cengage Learning, Copyright 2015 (ISBN 9780170248525). Contents Week 1 Introduction

### Elasticity Revision Summary

Elasticity Revision ummary Elasticity a measure of how responsive one variable is to another rice Elasticity of emand Measures the responsiveness of demand to a change in price. E = % change in % change

### Unit Perfect Competition Unit Overview

Unit 2.3.2 - erfect competition Assumptions of the model Demand curve facing the industry and the firm in perfect competition rofit-maximizing level of output and price in the short-run and long-run The

### UNIT 6 cont PRICING UNDER DIFFERENT MARKET STRUCTURES. Monopolistic Competition

UNIT 6 cont PRICING UNDER DIFFERENT MARKET STRUCTURES Monopolistic Competition Market Structure Perfect Competition Pure Monopoly Monopolistic Competition Oligopoly Duopoly Monopoly The further right on

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron.

Principles of Microeconomics, Quiz #5 Fall 2007 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron. 1) Perfect competition

### d d Calculating Price Elasticity of Demand: The Midpoint or Arc Method

Microeconomics Topic 5: Discuss factors that determine demand and supply elasticity. Explain how demand and supply elasticity affect tax policy and the consequences of business decisions. Reference: Gregory

### Quantity Tax Incidence Subsidy Welfare Effects Case Study. Equilibrium Chapter 16

Equilibrium Chapter 16 Competitive Equilibrium: Motivating Questions Firms are price-takers in competitive markets, but how is the market price (and quantity) determined? competitive equilibrium What happens

### C H A P T E R 4: The Price System, Demand and Supply, and Elas ticity. The Price System: Rationing and Allocating Resources

C H A P T E R 4 The Price System, Demand and Supply, and Elasticity Prepared by: Fernando Quijano and Yvonn Quijano Karl Case, Ray Fair The Price System: Rationing and Allocating Resources The market system,

### Review for the Midterm Exam.

Review for the Midterm Exam. 1. Chapter 1 The principles of decision making are: o People face tradeoffs. o The cost of any action is measured in terms of foregone opportunities. o Rational people make

### Problems: Table 1: Quilt Dress Quilts Dresses Helen 50 10 1.8 9 Carolyn 90 45 1 2

Problems: Table 1: Labor Hours needed to make one Amount produced in 90 hours: Quilt Dress Quilts Dresses Helen 50 10 1.8 9 Carolyn 90 45 1 2 1. Refer to Table 1. For Carolyn, the opportunity cost of 1

### THE ELASTICITY OF DEMAND

In this chapter, look for the answers to these questions: What is elasticity? What kinds of issues can elasticity help us understand? What is the price elasticity of demand? How is it related to the demand

### Microeconomics Instructor Miller Perfect Competition Practice Problems

Microeconomics Instructor Miller Perfect Competition Practice Problems 1. Perfect competition is characterized by all of the following except A) heavy advertising by individual sellers. B) homogeneous

### Double Integrals in Polar Coordinates

Double Integrals in Polar Coorinates Part : The Area Di erential in Polar Coorinates We can also aly the change of variable formula to the olar coorinate transformation x = r cos () ; y = r sin () However,

### Elasticity and Its Application

Elasticity and Its Application Chapter 5 Elasticity... is a measure of how much buyers and sellers respond to changes in market conditions allows us to analyze supply and demand with greater precision.

### 1 st Exam. 7. Cindy's cross-price elasticity of magazine demand with respect to the price of books is

1 st Exam 1. Marginal utility measures: A) the total utility of all your consumption B) the total utility divided by the price of the good C) the increase in utility from consuming one additional unit

### Price. Elasticity. Demand

+ Price Elasticity of Demand + n Elasticity = measure the responsiveness of one variable to changes in another variable. n Price elasticity of demand measures the responsiveness of demand to changes in

### Pre-Test Chapter 18 ed17

Pre-Test Chapter 18 ed17 Multiple Choice Questions 1. (Consider This) Elastic demand is analogous to a and inelastic demand to a. A. normal wrench; socket wrench B. Ace bandage; firm rubber tie-down C.

### Elasticity. Ratio of Percentage Changes. Elasticity and Its Application. Price Elasticity of Demand. Price Elasticity of Demand. Elasticity...

Elasticity and Its Application Chapter 5 All rights reserved. Copyright 21 by Harcourt, Inc. Requests for permission to make copies of any part of the work should be mailed to: Permissions Department,

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron.

Principles of Microeconomics Fall 2007, Quiz #6 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron. 1) A monopoly is

### Lecture 6 Part I. Markets without market power: Perfect competition

Lecture 6 Part I Markets without market power: Perfect competition Market power Market power: Ability to control, or at least affect, the terms and conditions of the exchanges in which one participates

### Chapter 4 Elasticities of demand and supply. The price elasticity of demand

Chapter 4 Elasticities of demand and supply The price elasticity of demand measures the sensitivity of the quantity demanded of a good to a change in its price It is defined as: % change in quantity demanded

### Econ 2113 Test 2A Pledge: I have neither given nor received aid on this exam.

Econ 2113 Test 2A Dr. Rupp Spring 2011 Name: Pledge: I have neither given nor received aid on this exam. Signature: Multiple Choice Identify the choice that best completes the statement or answers the

### Microeconomics Instructor Miller Practice Problems Monopolistic Competition

Microeconomics Instructor Miller Practice Problems Monopolistic Competition 1. A monopolistically competitive market is described as one in which there are A) a few firms producing an identical product.

### Monopoly. Monopoly. Causes of Monopolies. Profit Maximization. ECON 370: Microeconomic Theory. Summer 2004 Rice University Stanley Gilbert

Monool market with a single seller Monool ECON 370: Microeconomic Theor Firm demand = market demand Firm demand is downward sloing Monoolist can alter market rice b adjusting its own outut level Summer

### What is Adverse Selection. Economics of Information and Contracts Adverse Selection. Lemons Problem. Lemons Problem

What is Adverse Selection Economics of Information and Contracts Adverse Selection Levent Koçkesen Koç University In markets with erfect information all rofitable trades (those in which the value to the

### Elasticities can be estimated from records of past experience or test markets by the statistical technique of multiple regression.

Chapter 3 Elasticity Chapter 3: Elasticity CHAPTER SUMMARY The elasticity of demand measures the responsiveness of demand to changes in a factor that affects demand. Elasticities can be estimated for price,

### (P 2 P 1 )/[(P 1 + P 2 )/2]. It shows how flexible sellers are to a change in price.

September 15, 2008 Elasticity of supply The price elasticity of supply measures how quantity offered of a good responds to a change in the good s price. It is defined the same as price elasticity of demand,

### Figure 1, A Monopolistically Competitive Firm

The Digital Economist Lecture 9 Pricing Power and Price Discrimination Many firms have the ability to charge prices for their products consistent with their best interests even thought they may not be

### Econ 201 Lecture 8. Price Elasticity of Demand A measure of the responsiveness of quantity demanded to changes in price.

Econ 01 Lecture 8 rice Elasticity of emand measure of the responsiveness of quantity demanded to changes in price. Highly responsive = "elastic" Highly unresponsive = "inelastic" rice elasticity of demand

### TOPIC 4: ELASTICITY AND ITS APPLICATIONS

TOPIC 4: ELASTICITY AND ITS APPLICATIONS Dr Micheál Collins mlcollin@tcd.ie TOPIC 4: ELASTICITY AND ITS APPLICATIONS 1. Introduction 2. Price Elasticity of Demand Definition Categories Determinants Elasticity

### Elasticity. Demand is inelastic if it does not respond much to price changes, and elastic if demand changes a lot when the price changes.

Elasticity The price elasticity of demand measures the sensitivity of the quantity demanded to changes in the price. Demand is inelastic if it does not respond much to price changes, and elastic if demand

### Tax, Subsidy, and General Equilibrium

Tax. rinciples of Microeconomics, Fall hia-hui hen October, Lecture Tax, ubsidy, and General Equilibrium Outline. hap : Tax. hap : ubsidy. hap : General Equilibrium. hap : Exchange Economy Tax Government

### Chapter 5 Elasticity of Demand and Supply. These slides supplement the textbook, but should not replace reading the textbook

Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook 1 What is total revenue? Price multiplied by the quantity sold at that price

### 1 Gambler s Ruin Problem

Coyright c 2009 by Karl Sigman 1 Gambler s Ruin Problem Let N 2 be an integer and let 1 i N 1. Consider a gambler who starts with an initial fortune of \$i and then on each successive gamble either wins

### Practice Multiple Choice Questions Answers are bolded. Explanations to come soon!!

Practice Multiple Choice Questions Answers are bolded. Explanations to come soon!! For more, please visit: http://courses.missouristate.edu/reedolsen/courses/eco165/qeq.htm Market Equilibrium and Applications