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lect1n - Basic Micro Demand A demand curve is a...

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Basic Micro: Demand A demand curve is a relationship between the quantity of a desired item and the willingness to pay (WTP) . One feature of a demand curve that we’ll be particularly interested in is the consumer surplus . Consumer surplus is the difference between WTP and price for all units purchased. The demand curve can be read in one of two ways. Either q or p can be viewed as the dependent variable and the other as the independent variable, though the usual way is with price as the independent variable.
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Basic Micro: Demand To see how much demand changes with changes price we are interested in the slope of the demand curve, i.e dq dp . The problem with that is slopes are sensitive to units of measurement. To determine price/quantity relationships that are “unit free”, we work with the elasticity of demand . The elasticity of demand is the percentage change in quantity demanded over the percentage change in price: = - d log q d log p = - dq dp p q
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Basic Micro: Costs We’ll think of a firm as process of transferring inputs into outputs. The efficiency of this process is reflected in the firm’s cost function . Some (hopefully) familiar cost concepts Fixed Cost FC The cost that does not depend on output level.
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