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summary+and+review+after+week+5 - ARE100A INTERMEDIATE...

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ARE100A INTERMEDIATE MICROECONOMICS: THEORY OF PRODUCTION AND CONSUMPTION Study Guide first half of the course—through week 5. A quick guide to important material that we have covered in some detail. Supply and demand review. Define elasticities as ratio of %Change or as log derivatives or as (dZ/dW)(W/Z)… the elasticity of W (price, income etc.) of Z (demand or supply). The demand function Z = D(P z ,P s ,P c ,Y), where prices of substitutes and complements and income shift the demand curve and where the demand curve plots Z on the horizontal axis and P z on the vertical axis. If a market is segmented the demand in the whole market is the horizontal sum of demand in the sub-markets. The supply function is Z = S(P z ,P i ,K) where prices of inputs and the quantity of fixed inputs shift the supply curve and where the supply curve plots Z on the horizontal axis and P z on the vertical axis. If a market is segmented the supply in the whole market supplied is the horizontal sum of supply in the sub-markets. Generally supply and demand elasticities are larger in the long run. The slopes or elasticities of supply and demand determine effects of taxes, subsidies and other shifts on the new equilibrium price and quantity in a market.
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