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Unformatted text preview: demand in soda, a 4) Price elasticity of supply E = |(%hQ)/(%hP)| Ey = (%hQ)/(%hINC) Ecross = (%hQi)/(%hPj) Es = (%hQs)/(%hP) Sheet1 Page 2 Allocative Efficiency Marginal Analysis This looks at the costs and benefits of an action, and compares the costs and benefits. If the marginal benefit of an action exc e If the marginal benefit of anal action is less than the marginal cost of the action =&gt; don't do the action Explanation of Marginal Cost and Benefit: Do I want to eat a 3rd slice of pizza? Marginal benefit from the THIRD slice Marginal cost from the THIRD slice Those are compared to figure out the course of action If looking at a demand graph, and at a price of $8 the equilibrium quantity of pizza is 1 million, then that is the price at which th e...
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- Summer '08