Lecture 2-26

Lecture 2-26 - Lecture 2/26/09 Homework #3 is due on...

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Q P 10 10 As Price increases, TR increases As Price increases, TR decreases Q P e is a unit elastic point, above which the area is elastic; the same goes for an elastic demand D D S P Q e goes through the origin, the elasticity is always one Lecture 2/26/09 Homework #3 is due on Tuesday! Reading: Chapters 9, 10, 11, Appendix 20 P Qd TR 0 10 $0 2 8 16 4 6 24 6 4 24 8 2 16 10 0 0 Max TR: P=5, Q=5, TR=$25
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Income Elasticity Ei = % change in Qd/% change in income Tells us the relative shift in the demand curve due to a change in income Example: Increase in income Increase in Qd – normal good (Ei > 0) Decrease in Qd – inferior good (Ei < 0) Example: Ei = 0.25 for every 1% increase in income, you get 0.25% increase in Qd Cross-Price Elasticity of Demand Exy = % change in Qdx/% change in Py Example: Increase in price of Y Increase in Qdx – Substitutes (Exy > 0) Decrease in Qdx – Complements (Exy < 0) No change in Qdx % change in Qdx = 0 Exy = 0 Price of Supply Es = % change in Qs/% change in Pa
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Lecture 2-26 - Lecture 2/26/09 Homework #3 is due on...

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