Mid_2_outline - Midterm 2 Class Notes Chapters 7, 8, and 9...

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Midterm 2 Class Notes Chapters 7, 8, and 9 4/15/10 I. Chapter 7 – Elasticity A. Consumer choice 1.Consumer surplus 2. Diminishing marginal utility 3. MU per $ of one good versus another 4. Substitution and income effects a. Substitution b. Income 5. Market demand B. Price elasticity of demand – consumer’s responsiveness to price changes - % change in quantity/% change in price 1. Examples a. b. c. 2. vertical demand is curve 3. a horizontal demand curve 4. demand elasticity of > 1, = 1, < 1, 5. steeper demand curves 6. point formula 7. arc formula 8. elasticity over a downward sloping demand curve 9. if demand is elastic, total revenue ? as price falls 10. Comparing different curves, flatter is ? C. Determinants of price elasticity 1. Primary determinant - number and availability of substitutes 2. % of budget 1
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3. time 4. how narrowly defined 5. necessity or luxury C. Income elasticity - % change in quantity for a % change in income 1. normal goods 2. Inferior goods D. Cross-elasticity of demand - % change in the quantity
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This note was uploaded on 09/08/2010 for the course ECON 1B at San Jose State University .

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Mid_2_outline - Midterm 2 Class Notes Chapters 7, 8, and 9...

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