EC 201 9-24-08 - If unit elastic(e=1 TR constant • If...

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EC 201 9-24-08 $4/gallon 13 gallons = $52 o Total expenditure ($) = P*Q o ($/Q)(Q) = $ How does area change as we slide along D curve? o Area: total expenditure for buyers (P buyers ) (Q) Total revenue for sellers (P sellers ) (Q) o As we slide, P↑→ Qd ↓ Or P↓→Qd↑ o P + Qd have opposite effects on total rev. o If P ↑ (all else equal) TR↑ but P↑→Qd↓ o If Qd↓(all else equal ) TR↓ % ∆Qd > % ∆P E= (% ∆Qd)/(%∆P)>1 elastic If elastic (e>1), P↑TR↓, P↓TR↑ % ∆Qd<%∆P E=(% ∆Qd)/(%∆P)<1 inelastic If inelastic (e<1), P↑→TR ↑, P↓→TR↓ %∆Qd=%∆P E==(% ∆Qd)/(%∆P)=1 unit elastic
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Unformatted text preview: If unit elastic (e=1), TR constant • If elastic, e>1, P ↑→Qd↓ • If unit elastic, e=1, TR unchanged • D for basic foodstuffs, inelastic • S curve for food to right, again and again • Inelastic D+S to right →TR↓ • Revenue squeeze for farmers • Political pressure for govt. subsidies • Attempts to slow down tech. improvements • Old TR =(90)(1.05M)=$945,000 • New TR=(110)(.95 M)=$1,045,000 TR↑ • P ↑ $3/lb. to $4/lb. • Qd↓ 240,000 to 180,00 • E=(∆Qd/Qd – avg. ) / (∆P/P-avg.) = (6/21)/(1/3.5)=(6/21)3.5=21/21=1 unit elastic • P↑ +unit elastic, TR unchanged...
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EC 201 9-24-08 - If unit elastic(e=1 TR constant • If...

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