B200.F08.W07.Eff.GovPol.Clsnts - BUAD 200: Week 07 October...

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BUAD 200: Week 07 October 06-08, 2008 Classnotes Efficiency of Markets & Government Policies (Chapters 7 & 6 ) Finish old, Recall: Price Elasticity of Demand : E d = % Qty demanded / % Price. 1 . Determinants of Price elasticity of demand. A. Number and closeness of Substitute products. B. Information about price change and availability of Substitutes. C. Percentage of income spent. D. Amount of time following the price change . Second Law of Demand : Demand is More Elastic in the long run 1) More information on change in price & availability of substitutes. 2) More substitutes available 3) Greater opportunity to change the complementary set of goods owned. 2. Other Elasticity measures of responsiveness A. Income Elasticity of Demand : E I = % Qty demanded / % Income. 1) Positive for normal goods 2) Negative for inferior goods B. Cross-Price Elasticity of Demand : E x/Py = % Qty X demanded / % Price Y 1) Positive for Substitute goods 2) Negative for Complements NEW: 1. The Efficiency of markets: We have seen that the interaction of market demand and market supply determine the price in the competitive market. The market price goes out as a signal to individual buyers and sellers. A. Buyers : Each buyer observes the market price and purchases every unit of the good that has a marginal value equal or greater than price. Thus, for each buyer, the marginal value of the last unit purchased is equal to the market price.
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This note was uploaded on 11/18/2008 for the course BUAD 200x taught by Professor Hergenrather during the Fall '05 term at USC.

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B200.F08.W07.Eff.GovPol.Clsnts - BUAD 200: Week 07 October...

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