Intro to Microeconomics_Agnello_Date_030910

# Intro to Microeconomics_Agnello_Date_030910 - Side Note...

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Conclusions on Supply and Demand - We are all contributors to markets - Suppliers and/or demanders - Free Market Economy uses Supply and Demand to achieve technical efficiency, in answering questions of - What to produce? - How to produce it? - Who gets what? - Amazing that chaos doesn’t result - What makes it all work? - “Invisible Hand” and the tool called price (or wage, or interest, etc) - Self interest makes it all happen without any direction Chapter 5: Elasticity - Qualitative Supply and Demand - direction of slopes and shifts - Quantitative Supply and Demand - more precision Why is more precision important? 1) Precise numbers are more useful than up and down information 2) Sometimes S and D model gives indeterminate number when both S and D shift If we know exact steepness or flatness we may be able to eliminate or “determinate” 3) More precise numbers may enable us to determine profitability; strategies for sellers

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Unformatted text preview: Side Note: Perfect elasticity means and elasticity of zero. Perfectly elastic means an elasticity of infinity. Elasticity - gives more precision; decreasing for sharper and/or useful for sellers and producers e = %∆Q / %∆Factor Scale free (units don’t matter) Elastic - very responsive e> 1 Inelastic - not very responsive e<1 Demand Elasticity 1) Price elasticity of demand e = I %∆QD / %∆P I Computation ∆(PD) = I %∆QD / %∆PI Average between distant points ∆Q and ∆P is large 1) A to B 1) e1 = (Q ⎮ B - QA) / QA / (PB - PA) / PB ⎮ 2) B to A 1) e2 = (Q ⎮ A -QB) / QB / (PA - PB) / PB ⎮ 3) Mid Point Method 1) eAB = ∆Q / Avg Q ⎮ AB / ∆P / Avg PAB ⎮ 2) Avg QAB = QA + QB / 2 3) Avg PAB = PA + PB / 2 * Note* e1 ≠ e2...
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## This note was uploaded on 08/30/2010 for the course ECON 151 taught by Professor Harris during the Spring '07 term at University of Delaware.

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Intro to Microeconomics_Agnello_Date_030910 - Side Note...

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