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ECON2209 Lecture Notes - Lecture 3: Arc Elasticity, Economic Equilibrium, Unit

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School
Boston College
Department
Economics
Course
ECON2209
Professor
Professor Konan

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January 23rd
● 4. Equilibrium
○ Market Equilibrium
■ A, intersection of D and S
○ Shortages vs. Surplus
■ Shortage or excess demand
● Occurs when price is less than equilibrium price
● Quantity demanded > Quantity supplied
■ Surplus or deficient demand
● Occurs when price is more than equilibrium
● 8 Scenarios
○ 1. (individual, single shift) Increase in Demand, Supply constant
■ Price: Increase
■ Quantity: Increase
○ 2. (individual) Decrease in demand, supply constant
■ Price: Decrease
■ Quantity: Decrease
○ 3. (individual) Constant demand, supply increase
■ Price: Decrease
■ Quantity: Increase
○ 4. (individual) Constant Demand, supply decrease
■ Price: Increase
■ Quantity: Decrease
○ 5. (combo) Increase demand, increase supply
○ 6. (combo)
○ 7. (combo)
○ 8. (combo)
● Elasticity:
○ General Definition: measure of responsiveness of one variable to the change in
another variable
■ How x will respond to changes in y
○ Ex,y = %change x / % change y = changex/x / change y/y
○ Midpoint way:
■ X = ½ (x1+ X2)
○ Elasticity of Demand:
■ Measure of responsiveness of quantity demanded to a change in the
change in one factor affecting demand (could be price, income, taste,
expectation, other price etx.)
■ EQdF= %changeQD/%changeF = changeQd/Qd / changef/f
○ EQdF = (%�QD/%�F)
■ Midpoint: Q=½(Q1+Q2)
■ �
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Document Summary

Occurs when price is less than equilibrium price. Occurs when price is more than equilibrium. 1. (individual, single shift) increase in demand, supply constant. 2. (individual) decrease in demand, supply constant. General definition: measure of responsiveness of one variable to the change in another variable. How x will respond to changes in y. Ex,y = %change x / % change y = changex/x / change y/y. Measure of responsiveness of quantity demanded to a change in the change in one factor affecting demand (could be price, income, taste, expectation, other price etx. ) How quantity demanded responds to changes in price. Arc elasticity: elasticity between 2 points, you must be given two points otherwise you cannot do it. Arc elasticity: ed=eqd,p= (q2-q1)/1/2(q1+q2) / (p2-p1)/1/2(p1+p2) all. Tr = p*q (p & q move in opposite directions) will follow the dominant effect between p and q. If quantity effect dominates, tr will follow q (demand is elastic)

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Related Questions

The primary difference between a change in supply and a change in the quantity supplied is:
Choose one answer.
a. a change in quantity supplied is a shift in the supply curve, and a change in supply is a movement along the supply curve.
b. both a change in quantity supplied and a change in supply are movements along the supply curve, only in different directions.
c. a change in quantity supplied is a movement along the supply curve, and a change in supply is a shift of the supply curve.
d. a change in supply is a movement to the left along the supply curve and a change in quantity supplied is a movement to the right along the supply curve.

Question 2
What is the difference between a shortage and scarcity?
Choose one answer.
a. Scarcity will always exist because choices must be made, but a shortage will only exist if the price is kept below the equilibrium level.
b. Scarcity is a result of two or more alternative uses and will always exist, and quantities of supply and demand adjusting to flexible prices will create shortages.
c. A surplus will exist when a good is scarce; a shortage merely implies that there isn't as much of something as people would like, which is nearly always the case.
d. There is no distinction between the two. They are the same thing.

Question 3
A decrease in supply means:
Choose one answer.
a. a shift to the left of the entire supply curve.
b. moving downward (to the left) along the supply curve with lower prices.
c. less will be demanded at every price.
d. more will be supplied at every price.

Question 4
A decrease in demand, with no change in supply, will lead to ________ in equilibrium quantity and ________ in equilibrium price.
Choose one answer.
a. an increase; an increase
b. an increase; a decrease
c. a decrease; an increase
d. a decrease; a decrease

Question 5
After graduation from college you will receive a substantial increase in your income from a new job. If you decide that you will purchase more T-bone steak and less hamburger, then for you hamburger would be considered a( n ):
Choose one answer.
a. normal good.
b. substitute good.
c. complementary good.
d. inferior good.

Question 6
There is equilibrium in the market when:
Choose one answer.
a. there is no shortage.
b. there is no surplus.
c. price is established where the supply curve and the demand curve intersect.
d. all of the above are true.

Question 7
Which would not cause the supply curve to shift?
Choose one answer.
a. a change in technology
b. a change in factor costs
c. a change in the price of the good
d. a change in the prices of related goods

Question 8
Given that meat and potatoes are complementary goods, if the price of meat decreases substantially, there would be:
Choose one answer.
a. an increase in the demand for potatoes.
b. an increase in the quantity of potatoes demanded.
c. a decrease in the demand for potatoes.
d. no change in the demand for potatoes.

Question 9
Given that milk and cookies are complements, suppose the price of flour (an ingredient in cookies) rises. What happens in the market for milk?
Choose one answer.
a. The equilibrium price and quantity rise.
b. The equilibrium price rises and the equilibrium quantity falls.
c. The equilibrium price and quantity fall.
d. The equilibrium price falls and the equilibrium quantity rises.

Question 10



A temporary price of $2 in this market would result in:
Choose one answer.
a. a surplus of 8,000 bushels.
b. a shortage of 8,000 bushels.
c. a shortage of 10,000 bushels.
d. a surplus of 10,000 bushels.

Question 11
The price of oranges rises. What happens in the market for apples, which are a substitute for oranges?
Choose one answer.
a. The equilibrium price falls, and the equilibrium quantity rises.
b. The equilibrium price rises, and the equilibrium quantity falls.
c. The equilibrium price and quantity rise.
d. The equilibrium price and quantity fall.

Question 12
A market surplus occurs if the:
Choose one answer.
a. price is below the equilibrium price.
b. price is equal to the equilibrium price.
c. equilibrium price is above the actual price.
d. equilibrium price is below the actual price.

11.The concept of total surplus is a useful but imperfect measure of:

A. wellbeing

B. comparative advantage

C. market power

D. price elasticity of demand

12.Assume that burgers and pizzas are substitute goods in consumption only. When the burger price increases we will see which of the following changes in the pizza market?

A. An increase in demand and an increase in supply

B. An increase in demand and an increase in the quantity supplied

C. An increase in the quantity demanded and an increase in supply

D. An increase in the quantity demanded and no change to the quantity supplied

13.If the current price in a competitive market is $10 and the minimum of the the average total cost curve for a representative firm is $12, what is likely to occur to the market supply curve and the market price?

A. Supply will decrease and the price will rise

B. Supply will decrease and the price will fall

C. Supply will increase and the price will rise

D. Supply will increase and the price will fall

In any economic system, scarce resources have to be allocated among competing uses. Market economies harness the forces of

a.

government to allocate scarce resources.
b.

supply and demand to allocate scarce resources.
c.

nature to allocate scarce resources.
d.

credit cards to allocate scarce resources.

The price elasticity of demand measures the

a.

magnitude of the response in quantity demanded to a change in price.
b.

size of the shortage created by the increase in demand.
c.

direction of the shift in the demand curve in response to a market event.
d.

responsiveness of quantity demanded to a change in income.

If the price elasticity of supply is 0.4, and a price increase led to a 5% increase in quantity supplied, then the price increase is about

a.

1.2%.
b.

2%.
c.

0.25%.
d.

12.5%.

Which of the following is the least likely to be a competitive market?

a.

ice cream
b.

soybeans
c.

cable television
d.

new houses

Economists speaking like policy advisers make

a.

claims about how the world is.
b.

descriptive statements.
c.

normative statements.
d.

More than one of the above is correct.

Economists speaking like scientists make

a.

positive statements.
b.

prescriptive statements.
c.

claims about how the world should be.
d.

More than one of the above is correct.

A decrease in the price of a good will

a.

increase quantity supplied.
b.

decrease supply.
c.

decrease quantity supplied.
d.

increase supply.