Econ 9-17-07

Econ 9-17-07 - Econ 9/17/07 1. Total Revenue and Elasticity...

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Econ 9/17/07 1. Total Revenue and Elasticity a. Exmp Q= 10- P TR= Q*P Price 10 9 8 7 6 5 4 3 2 1 Quantity 0 1 2 3 4 5 6 7 8 9 TR= 0 9 16 21 24 25 24 21 16 9 Exx inf. 9 4 2.3 1.5 1 .67 3/7 .25 1/9 Exx= ΔQ * P P,Q = Final Price, Quantity ΔP Q Slope = ΔP ΔQ b. What this tells us: i. Revenue increases while Exx > 1 ii. Revenue is at it’s peak when Exx=1 iii. Revenue decreases while Exx < 1 c. A perfectly elastic curve has a TR slope = 1 d. A perfectly inelastic curve has an infinite TR slope, dependant on the price paid per item. 2. Other Elasticities a. Cross Price Elasticity i. Exy= %Δ in Qx %ΔQ= ΔQ % Δ in Py Qx ii. If Exy >0 1. Then goods are substitutes iii. If Exy<0 1. Then the goods are compliments iv. If Exy= 0 1. There is no relation in the goods b. Income Elasticity i. Exm= %Δ in Qx = ΔQx * M %Δ in M ΔM Q ii. If Exm >0 1. X is a normal good iii. If Exm <0 1. X is an inferior good 3. Second Law of Demand a. In the Long Run, demand curves are more elastic than in the Short Run
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Econ 9-17-07 - Econ 9/17/07 1. Total Revenue and Elasticity...

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