EC 201 9-29-08 - • Now D elasticities concerned with...

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EC 201 9-29-08 Paulson Plan – treasury to buy up to $700 B of assets o Additions: Limits on exec. Compensation Oversight Ownership stake Some help for foreclosures Only $250 B at first At first, expenditure Where does that come from? o Borrowing from abroad Downward pressure on dollar Lehrer: $ 700 B will cost us – what will you give up? Obama: ↑taxes on top 5%- slowing down spending McCain: “earmarks”- infrastructure- special projects - < 1 % of budget o social security, Medicare, Medicaid, defense, interest on debt own-price elasticity of D o all else equal, tend to be more elastic if 1. Easy to substitute 2. Bigger portion of budget 3. Longer period of time to adjust So far, own-price elasticity of D o E= (%∆Qd)/(%∆P) o Movements along existing D curves
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Unformatted text preview: • Now, D elasticities concerned with shifts to different D curve o 1. Income Elast. Of D E I = (%∆Q)/ (% ∆ income) E I > 0 : normal good E I < 0 : inferior good Don’t use absolute value o 2. Cross-price Elast. Of D E xy =(%∆Q x )/ (%∆P y ) E xy >0 for substitutes coffee and tea E xy <0 for complements coffee and sugar • (own-price) elast. of supply o E s = (%∆Q s )/(%∆P) o Irreproducible o E s =0 - perfectly inelastic supply o S is often perf. Inelastic in very short run • If law of supply is followed then we have elast. of supply >0 • Very long run, elast. of supply very large • For D elast. + S elast. (own-price), elast. higher when more time to adjust o Extreme perfect elast. E s =∞ •...
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EC 201 9-29-08 - • Now D elasticities concerned with...

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