26 - Exam Review

# 26 - Exam Review - supply curve could be caused by a an...

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Exam Review Formulas o Formula for %∆ Midpoint formula: (new-old)/average o Elasticity of Demand: (%∆Q D )/(%∆P) E D < 0 o Cross Price Elasticity: measures the response and the quantity demanded of one good given a price changes in another good What happens to demand of hamburgers given a price change in fries? E X = (%∆Q B decreases)/(%∆P A increases) – negative for complements Determinates of the Elasticity of Demand - E D o Number of available substitutes o Share of income spent on a good o Time line – more time that goes by, the more time that you have to change your opinion on the good Determinates of Demand o Income – higher income means high demand for normal goods and lower demand for inferior goods o Price of substitutes Changes in Demand o Know this Changes in Supply 4. The diagram above shows the supply and demand curves for cherries. The shift in the
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Unformatted text preview: supply curve could be caused by: a. an improvement in the technology of cherry production b. a tax on cherries c. an increase in incomes of consumers d. an increase in the price of cherries e. an increase in the price of apples, a substitute for cherries o Price is determined by supply: Supply and Demand determine Price and Quantity, not the other way around. There will be a smaller Quantity Demanded when the price rises, but the Demand itself does not go away. • Subsidies o The supply curves shifts so that the vertical distance is equal to the value of the subsidy. o If quantity goes up, what happens to production costs? When a firm expands production, its per-unit production costs rise...
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