{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Final Exam Card 2 - Price Elasticity of demand(different...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Price Elasticity of demand (different per point on curve) Total Revenue: P * Q Total Surplus = Producer + Consumer Σ = | %ΔQ D / %ΔP | (ΔQ D / Q D ) and (ΔP / P) Use midpoint in formula (denominator) Steeper = less elastic Σ < 1 →demand is inelastic (weak) Σ = 1 →demand is unit elastic Σ > 1 →demand is elastic (strong) Flatter = more elastic Σ < 1 P↑ ►Q D ↓►TR↑ Σ = 1 P↑►Q D ↓►TR→ Σ > 1 P↑►Q D ↓►TR↓ Σ = ∞ then “perfectly elastic” Elasticity Influences: 1. more substitutes = higher elasticity, more time that passes after P change Σ↑ Luxury goods more elastic 2. Fraction of income spent on the good/service Fraction↑ ► Σ↑ Σ INC = (%∆QD) / (%∆INC) Normal: (+) Inferior: (─) D curve for monopolist same as market D curve Marginal Rate of Sub. Indifference curve steep (flat), marginal rate of sub is high (low) Production function f(L,K) = Q Effect of a change in the price on the quantity of a good consumed is called the price effect. Eco Profit = Tot Rev – Opp. Costs Effect of a change in income on consumption is called the income effect.
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Ask a homework question - tutors are online