11_Elasticity-1

# 11_Elasticity-1 -...

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“The willow which bends to the tempest, often escapes better than the oak which  resists it; and so in great calamities, it sometimes happens that light and frivolous  spirits recover their elasticity and presence of mind sooner than those of a loftier  character.” –Albert Schweitzer ECON 410 Elasticity

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2 Class 11 - Elasticity
3 Class 11 - Elasticity

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4 Class 11 - Elasticity Steps to Analytically Solve for an Individual’s Demand Curve 1. Create the Lagrange equation with the specified utility, but leave I, p1, and p2 as parameters. 2. Take the FOC’s and solve for x1 and x2. Your results will be as a function of I, p1, and p2 (or some combination of the three). x1 and x2 will be your Demand Functions. 3. To plot your Demand Curves , solve your optimal x1 solution for p1. Plug in points for x1 and plot the corresponding values of p1. Solve your optimal x2 solution for p2. Plug in points for x2 and plot the corresponding values of p2.
5 Class 11 - Elasticity Good 1 Price of Good 1, p1 1 0 1 1 2 2 3 ... p x I p β + = + + +

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Self-Clicker Question (P): In political debates, you will occasionally hear that labor Unions are “job-killers”. For every 10% increase in manufacturing wages, how many manufacturing jobs do you think are killed? 1. 1% 2. 3% 3. 5% 4. 8% 5. 10% 6. 15% 7. 20%
Self-Clicker Question (P): In political debates, you will occasionally hear that labor Unions are “job-killers”. For every 10% increase in non- manufacturing wages, how many non-manufacturing jobs do you think are killed? 1. 1% 2. 3% 3. 5% 4. 8% 5. 10% 6. 15% 7. 20%

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8 Class 11 - Elasticity ElasticityA,B 1. A,B 2. “Elasticity of A with respect to B” 3. “B Elasticity of A” The percent change in A that results from a percent change in B.
9 Class 11 - Elasticity ElasticityA,B 1. A,B 2. “Elasticity of A with respect to B” 3. “B Elasticity of A” The percent change in A that results from a percent change in B. % % A B V V

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Group-Clicker Question (P): What is the best verbal interpretation of x1,p1 1. The percent change in demand for good 1 that results from a percent change in the price of good 1. 2. The percent change in the price of good 1 that results from a percent change in the demand of good 1. 3. The absolute (not percentage) change in demand for good 1 that results from an absolute (not percentage) change in the price of good 1
11 Class 11 - Elasticity ElasticityA,B % % A B V V A A B B = V V Definition of % A B B A = V V Fractions

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. If an individual studies 4 hours per day for their midterm, they will get an 80. If an individual studies 6 hours per day for their midterm, they will get an 85. What is the individual’s elasticity of midterm grade with respect to hours
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## This note was uploaded on 01/05/2012 for the course ECON 410 taught by Professor Codrin during the Fall '07 term at UNC.

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11_Elasticity-1 -...

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