Chapter06_H - 6E:001 Principles of Economics Spring, 2008...

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1 6E:001 Principles of Economics Spring, 2008 Chapter 6 - Demand Elasticity Ch.6 2 What’s ahead { Some examples { Definition of elasticity { Elasticity vs shape of demand curve { Elasticity and Revenue { Determinants of elasticity { Other Elasticities z Income -- Cross Price -- Supply { Examples revisited Ch.6 3 e.g. 1 – The plight of the farmer { The Good News – bumper crop expected this year { The Bad News – Prices fall through the floor { Consequence – The farmer is worse off than in a bad year { Why?
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2 Ch.6 4 The plight of the farmer, cont. { Two possible scenarios z The good one Ch.6 5 The plight of the farmer, cont. { Two possible scenarios The good one And the bad Ch.6 6 e.g. 2 -- The War on Drugs { Heavy use of hard drugs is a growing problem z Wasted lives of users z Crimes committed to support habit { One proposed solution: Heavier enforcement of existing laws z Should raise cost of drugs z And that should decrease demand { Right?
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Ch.6 7 War on Drugs, Cont. The idea Ch.6 8 War on Drugs, Cont. The idea The actual outcome and theft increases, not decreases Ch.6 9 e.g. 3 – OPEC and Oil Prices { In 1973, OPEC cut production to increase oil prices { The price of a barrel of oil rose by 50 % in 1974 { More cuts, and more price increases -- 14% in ‘79, 34% in ’80, 34% in ’81 { But then prices began to fall, 10% a year from 82-85, then 45% in 1986. { By 1990, prices were back at 1970 levels!
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This note was uploaded on 03/28/2008 for the course ECON 06E:001:AA taught by Professor Nelson during the Spring '08 term at University of Iowa.

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Chapter06_H - 6E:001 Principles of Economics Spring, 2008...

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