Price Elasticity of demand (different per point on curve) Total Revenue: P * Q Total Surplus = Producer + ConsumerΣ = |%ΔQD/%ΔP| (ΔQD/QD) and (ΔP/P)Use midpoint in formula (denominator)Steeper = less elasticΣ < 1 →demand is inelastic (weak) Σ = 1 →demand is unit elastic Σ > 1 →demand is elastic (strong)Flatter = more elasticΣ < 1 P↑ ►QD↓►TR↑Σ = 1 P↑►QD↓►TR→ Σ > 1 P↑►QD↓►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↑ΣINC = (%∆QD)/(%∆INC) Normal: (+) Inferior: (─)D curve for monopolist same as market D curveMarginal Rate of Sub. Indifference curve steep (flat), marginal rate of sub is high (low) Production function f(L,K) = QEffect of a change in the price on the quantity of a good consumed is called the price effect.Eco Profit = Tot Rev – Opp. CostsEffect of a change in income on consumption is called the income effect.
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