Econ101_W2010_Exam2_ReviewSlides

Econ101_W2010_Exam2_ReviewSlides - Economics101...

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Economics 101 Microeconomics Midterm 2 Review Session March 27, 2010 University of Michigan Winter 2010 Sebastien Bradley
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Lecture 1 lan for Review Session 1. Overview of Key Concepts Plan for Review Session Elasticity Supply and Demand Functions Taxes roducer Revenue Producer Revenue International Trade Trade barriers ficiency/welfare Efficiency/welfare Externalities Efficiency/welfare orrective mechanisms Corrective mechanisms 2. Questions 2
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Lecture 1 lasticity Elasticity General concept: An elasticity is a measure of the percent change in one thing in response to a particular percent change in mething else something else. Examples: (Own )price elasticity of demand (supply) Cross price elasticity of demand (supply) come elasticity of demand Income elasticity of demand 3
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Lecture 1 wn Price Elasticity of Demand Own Price Elasticity of Demand Given a demand function: Q d = a + bP, a>0, b<0 easure the % ange in lative to the % ange in Measure the % change in Q d relative to the % change in P P Q Q Q Q % P Call this the own price elasticity of demand Q P P P P % b Q This is insensitive to the units in which P and Q are measured 4 DO NOT USE MIDPOINT METHOD IN TEXTBOOK
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Lecture 1 ther lasticities Other Elasticities Given a demand function Q d = a + bP + cY + dP Other a>0, b<0, c>0, d<0 ith if t i bt Y (i ) d th i f along with information about Y (income) and the price of some complementary (substitute) good, then we can: Measure the % change in Q d relative to the % change in P Other (i.e. the cross price elasticity of demand ) easure the % ange in d lative to the % ange in Y (i e the Measure the % change in Q relative to the % change in Y (i.e. the income elasticity of demand ) 5
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This note was uploaded on 04/20/2010 for the course ECON 101 taught by Professor Gerson during the Winter '08 term at University of Michigan.

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Econ101_W2010_Exam2_ReviewSlides - Economics101...

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