# ECO105Y1 Lecture Notes - Marginal Revenue Productivity Theory Of Wages, Marginal Revenue, Sunk Costs

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16 Nov 2012
School
Department
Course
Professor
Econ 105 Introduction 3/5/2012 11:18:00 AM
Econ 105
TA = Shajee
HW
- Register in the MyEconLab and do quiz zero
- Read Micro Ch1, Cassidy, Introduction and CH2
- Professor Cohen course ID cohen53454 (www.pearsonmylab.com)
Scarcity and Choice
- Scarcity: exists because of limited money, time, and energy
- Opportunity cost is the basic and most important concept in Economics
ļ· True cost of any choice
- Comparative Advantage: ability to produce at a lower opportunity cost
- Absolute Advantage: Lower absolute cost
- Read Micro Chap 2 for Monday
- Jacqueline produces 100 wood
- Jacqueline ends up with 20 bread and 80 wood
(compared to her original 20 bread and 60 wood)
- Samantha ends up with 20 bread and 20 wood
(compared to her original 20 bread and 10 wood)
-
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The Law of Demand & Elasticity
Weighing, Benefits, Costs, & Substitutes
- status good can drive prices into obscurity/into desire for luxury
- marginal is the sum of all the additions or additional changes to the
existing amount
- Quantity demanded is ONLY changed by price. Demand is changed by all
other influences on consumer choice.
- Demand Changes with change in: preferences, price of related goods,
income, expected future price and number of consumers all these have to be
in a constant for the law of demand to ring true in every case
- the change in the price of the same good changes the Quantity
Demanded
- If product a and b are used together then if the price of one falls the other
will increase because the combined use is still cheaper. Compliment
product (car and fuel)
Economies of Scale:
ļ· Spreading the fixed costs so that your average costs are lower
-ādimming economic out lookā Future economic out look
ļ· - āshifting economic tasteā ā preferences
- ādrinking more wineā - substitutes
Elasticity:
(āThe market is so sensitive to a price increase that we kid of have to eat
thatā)
- There is a lot of competition in the beer market making the product an
āElasticā product
- The measurement of how responsive quantity demanded is to a change in
price, and determines business pricing strategies to earn max. total revenue.
- change in quantity demanded = Price Elasticity of Demand
Change in price
- Inelastic Demand: small response in quantity demanded when the price
rises
- Elastic Demand: large response in quantity demanded when the price rises
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- Price elasticity of demand influenced by:
ļ· substitutes
ļ· Proportion of income spent
Total Revenue:
ļ· Price per unit (P) multiplied by quantity sold (Q)
ļ· When demand elastic (>1)
o Price cuts increase total revenue
ļ· When demand elastic (>1)
o Price increase total revenue
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