Economics Notes 10.3.07

Economics Notes 10.3.07 - Opportunity costs Country A W:3G...

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Opportunity costs: Country A: W:3G has comparative advantage, would specialize in G… only way can benefit if choose an appropriate terms of trade Country B: W:6G Choose terms of trade between the two numbers WHEAT: E D =1.4 Supposed P of wheat increases 10% E D = |%change quantity demanded/% change price| price elasticity of demand 1.4=|x/10| X=-14% (quantity demanded) Cross Price Elasticity of Demand = % change of Quantity of Good 1 / % change Price of Good 2 E<0, Price of Cheese Increases, Quantity of Ham Decreases Complements E>0, Price of Cheese Increases, Quantity of Ham Increases Substitutes E=0; no relationship Income Elasticity of Demand As income Increases, Demand shifts to the right… normal good % change in Quantity demanded / % Change in Income = Income Elasticity Greater than 0, Normal good Less than 0, Inferior good
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Revenue = $200, Q = 100, Price = $2 Revenue = $300, Q = 60, Price = $5 Revenue is Price X Quantity… Need to figure out Price Value should be less than 1 because as Price Increased, Revenue Increased |% change in Quantity Demanded / % change in Price | = |(60-100)/80 / (5-2)/3.5 |
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