ECON 112 Lecture Notes - Lecture 5: Demand Curve, Junkers J 1, Determinant

21 views5 pages
18 Sep 2015
Department
Course
Elasticity)and)Its)Application
Normally
1)
The-change-can-be-in-its-own-price
i.
But-we-could-also-consider-changes-in-other-things-too
ii.
Tries-to-measure-how-much-the-quantity-demanded-of-a-good-responds-to-
a-change-in…
a.
Percentage-change-in-quantity-demanded-divided-by-the-
percentage-change-in-price
i.
b.
Quantity-demanded-responds-substantially-to-changes-in-price
i.
Elastic-demand
c.
Quantity-demanded-responds-only-slightly-to-changes-in-price
i.
Inelastic-demand
d.
More-elastic-demand
a)
Goods-with-close-substitutes
1)
Necessities-=-inelastic
a)
Luxuries-=-elastic-
b)
Necessities-versus-luxuries
2)
Availability-of-close-substitutes
i.
Determinants-of-price-elasticity-of-demand
e.
Percentage-change-in-quantity-demanded-divided-by-percentage-
change-in-price
i.
Use-absolute-value
ii.
Computing-the-price-elasticity-of-demand
f.
Two-points-(q1,p1)-and-(q2,-p2)
i.
ii.
To-avoid-having-to-state-if-you-are-moving-to-the-right-or-the-
left
1)
Why-do-we-divide-by-the-average?
iii.
Midpoint-method
g.
Price-elasticity-of-demand-->-11)
An-increase-in-price-leads-to-a-large-decrease-in-quantity-
demanded
2)
Demand-is-elastici.
Price-elasticity-of-demand-<-11)
An-increase-of-price-leads-to-a-small-decrease-in-quantity2)
Demand-is-inelasticii.
Price-elasticity-of-demand-=-11)
An-increase-of-price-by-x%-leads-to-an-x%-decrease-in-quantity-
demanded
2)
Demand-has-unit-elasticityiii.
Price-elasticity-of-demand-=-01)
Demand-curve-is-vertical2)
An-increase-of-price-does-not-change-the-quantity-demanded3)
Demand-is-perfectly-inelasticiv.
Price-elasticity-of-demand-=-infinity1)
Demand-curve-is-horizontal2)
At-a-price-above-equilibrium,-the-quantity-demanded-is-zero,-
at-the-exact- price,-the-consumers-will-buy-any-quantity,-below-
the-equilibrium,-the-quantity-demanded-is-infinite
3)
Demand-is-perfectly-elasticv.
The-flatter-the-demand-curve,-the-greater-the-price-elasticity-of-
demand
vi.
Variety-of-demand-curvesh.
Amount-paid-by-buyers-and-received-by-sellers-of-a-goodi.
Price-of-good-x-quantity-soldii.
If-demand-is-inelastic,-TR-increasesiii.
If-demand-is-elastics,-TR-decreasesiv.
Price-and-TR-move-in-the-same-direction1)
When-demand-is-inelastic-(elasticity-<1)v.
Price-and-TR-move-in-opposite-direction1)
When-demand-is-elastic-(elasticity->1)vi.
TR-remains-constant-when-the-price-changes1)
If-demand-is-unit-elastic-(elasticity-=-1)vii.
Total-Revenuei.
Rise-over-run1)
Constant-slopei.
Points-with-low-price-and-high-quantity-=-inelastic-demand1)
Points-with-high-price-and-low-quantity-=-elastic-demand2)
Different-price-elasticities-ii.
Linear-demand-curvej.
How-much-the-quantity-demanded-of-a-good-responds-to-a-
change-in-consumers'--income
1)
Divided-by-the-percentage-change-in-incomea)
Percentage-change-in-quantity-demanded2)
Income-elasticity-of-demandi.
Positive-income-elasticity1)
Smaller-income-elasticities-a)
Necessities2)
Large-income-elasticitiesa)
Luxuries3)
Normal-goodsii.
Negative-income-elasticites1)
Inferior-goodsiii.
How-much-the-quantity-demanded-of-one-good-responds-to-a-
change-in-the-price-of-another-good
1)
Divided-by-the-percentage-change-in-price-of-the-second-
good
a)
Percentage-change-in-quantity-demanded-of-the-first-good2)
Cross]price-elasticity-of-demandiv.
Goods-typically-used-in-place-of-one-another1)
Positive-cross]price-elasticity2)
Substitutesv.
Goods-that-are-typically-used-together1)
Negative-cross]price-elasticity2)
Complementsvi.
Other-elasticity-goodsk.
The-Elasticity-of-Demand
I.
How-much-the-quantity-supplied-of-a-good-responds-to-a-change-in-
the-price-of-that-good
i.
Divided-by-the-percentage-change-in-price1)
Percentage-change-in-quantity-suppliedii.
Depends-on-the-flexibility-of-sellers-to-change-the-amount-of-the-
good-they-produce
iii.
Price-elasticity-of-supplya.
Quantity-supplied-responds-substantially-to-changes-in-the-pricei.
Elastic-supplyb.
Quantity-supplied-responds-only-slightly-to-changes-in-the-pricei.
Inelastic-supplyc.
Supply-is-more-elastic-in-long-run1)
Time-periodi.
Determinant-of-price-elasticity-of-supplyd.
Always-positive1)
Percentage-change-in-quantity-supplied,-divided-by-the-percentage-
change-in-price
i.
Same-as-demand1)
Midpoint-methodii.
iii.
Computing-price-elasticity-of-supplye.
Price-elasticity-of-supply->-11)
An-increase-in-price-leads-to-a-large-decrease-in-quantity-
supplied
2)
Supply-is-elastici.
Price-elasticity-of-supply-<-11)
An-increase-of-price-leads-to-a-small-decrease-in-quantity-
supplied
2)
Supply-is-inelasticii.
Price-elasticity-of-demand-=-11)
An-increase-of-price-by-x%-leads-to-an-x%-decrease-in-quantity-
supplied
2)
Supply-has-unit-elasticityiii.
Price-elasticity-of-supply-=-01)
Supply-curve-is-vertical-2)
An-increase-of-price-does-not-change-the-quantity-supplied3)
Supply-is-perfectly-inelasticiv.
Price-elasticity-of-supply=-infinity1)
Supply-curve-is-horizontal2)
At-a-price-above-equilibrium,-the-quantity-demanded-is-
infinie,-at-the-exact-price,-the-producers-will-supply-any-
quantity,-below-the-equilibrium,-the-quantity-suppliedis-zero
3)
Supply-is-perfectly-elasticv.
Variety-of-supply-curvesf.
The-Elasticity-of-SupplyII.
Three-Applications-of-Supply,-Demand,-and-ElasticityIII.
When-you-move-down-the-y-axis-it-becomes-inelastic.-On-the-demand-curve.-
Horizontal-=-elastic-
Vertical-=-inelastic-
All-curves-have-some-of-both-though.-Depending-on-the-point.-
Points-with-high-quantity-low-price-=-Inelastic-on-demand-curve
High-price-low-quantity-=-elastic-
High-price-and-high-quantity-=-inelastic-
Low-price-low-quantity-=-elastic-
Supply
Starting-q-small,-change-in-percentage-will-be-larger.-
Q-being-small-=-elastic
Decrease-in-supply:-large-increase-in-price
Short-run:-supply-and-demand-are-inelastic
Decrease-in-supply:-mall-increase-in-price
Long]run:-supply-and-demand-are-elastic
Chapter(5
Friday,-September- 11,-2015
1:42-PM
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Elasticity)and)Its)Application
Normally1)
The-change-can-be-in-its-own-pricei.
But-we-could-also-consider-changes-in-other-things-tooii.
Tries-to-measure-how-much-the-quantity-demanded-of-a-good-responds-to-
a-change-in…
a.
Percentage-change-in-quantity-demanded-divided-by-the-
percentage-change-in-price
i.
Price-elasticity-of-demandb.
Quantity-demanded-responds-substantially-to-changes-in-pricei.
Elastic-demandc.
Quantity-demanded-responds-only-slightly-to-changes-in-pricei.
Inelastic-demandd.
More-elastic-demanda)
Goods-with-close-substitutes1)
Necessities-=-inelastica)
Luxuries-=-elastic-b)
Necessities-versus-luxuries2)
Availability-of-close-substitutesi.
Determinants-of-price-elasticity-of-demande.
Percentage-change-in-quantity-demanded-divided-by-percentage-
change-in-price
i.
Use-absolute-valueii.
Computing-the-price-elasticity-of-demandf.
Two-points-(q1,p1)-and-(q2,-p2)i.
ii.
To-avoid-having-to-state-if-you-are-moving-to-the-right-or-the-
left
1)
Why-do-we-divide-by-the-average?iii.
Midpoint-methodg.
Price-elasticity-of-demand-->-1
1)
An-increase-in-price-leads-to-a-large-decrease-in-quantity-
demanded
2)
Demand-is-elastic
i.
Price-elasticity-of-demand-<-1
1)
An-increase-of-price-leads-to-a-small-decrease-in-quantity
2)
Demand-is-inelastic
ii.
Price-elasticity-of-demand-=-1
1)
An-increase-of-price-by-x%-leads-to-an-x%-decrease-in-quantity-
demanded
2)
Demand-has-unit-elasticity
iii.
Price-elasticity-of-demand-=-0
1)
Demand-curve-is-vertical
2)
An-increase-of-price-does-not-change-the-quantity-demanded
3)
Demand-is-perfectly-inelastic
iv.
Price-elasticity-of-demand-=-infinity
1)
Demand-curve-is-horizontal
2)
At-a-price-above-equilibrium,-the-quantity-demanded-is-zero,-
at-the-exact- price,-the-consumers-will-buy-any-quantity,-below-
the-equilibrium,-the-quantity-demanded-is-infinite
3)
Demand-is-perfectly-elastic
v.
The-flatter-the-demand-curve,-the-greater-the-price-elasticity-of-
demand
vi.
Variety-of-demand-curves
h.
Amount-paid-by-buyers-and-received-by-sellers-of-a-good
i.
Price-of-good-x-quantity-sold
ii.
If-demand-is-inelastic,-TR-increases
iii.
If-demand-is-elastics,-TR-decreases
iv.
Price-and-TR-move-in-the-same-direction
1)
When-demand-is-inelastic-(elasticity-<1)
v.
Price-and-TR-move-in-opposite-direction
1)
When-demand-is-elastic-(elasticity->1)
vi.
TR-remains-constant-when-the-price-changes
1)
If-demand-is-unit-elastic-(elasticity-=-1)
vii.
Total-Revenue
i.
Rise-over-run
1)
Constant-slope
i.
Points-with-low-price-and-high-quantity-=-inelastic-demand1)
Points-with-high-price-and-low-quantity-=-elastic-demand2)
Different-price-elasticities-ii.
Linear-demand-curve
j.
How-much-the-quantity-demanded-of-a-good-responds-to-a-
change-in-consumers'--income
1)
Divided-by-the-percentage-change-in-incomea)
Percentage-change-in-quantity-demanded2)
Income-elasticity-of-demandi.
Positive-income-elasticity1)
Smaller-income-elasticities-a)
Necessities2)
Large-income-elasticitiesa)
Luxuries3)
Normal-goodsii.
Negative-income-elasticites1)
Inferior-goodsiii.
How-much-the-quantity-demanded-of-one-good-responds-to-a-
change-in-the-price-of-another-good
1)
Divided-by-the-percentage-change-in-price-of-the-second-
good
a)
Percentage-change-in-quantity-demanded-of-the-first-good2)
Cross]price-elasticity-of-demandiv.
Goods-typically-used-in-place-of-one-another1)
Positive-cross]price-elasticity2)
Substitutesv.
Goods-that-are-typically-used-together1)
Negative-cross]price-elasticity2)
Complementsvi.
Other-elasticity-goodsk.
The-Elasticity-of-DemandI.
How-much-the-quantity-supplied-of-a-good-responds-to-a-change-in-
the-price-of-that-good
i.
Divided-by-the-percentage-change-in-price1)
Percentage-change-in-quantity-suppliedii.
Depends-on-the-flexibility-of-sellers-to-change-the-amount-of-the-
good-they-produce
iii.
Price-elasticity-of-supplya.
Quantity-supplied-responds-substantially-to-changes-in-the-pricei.
Elastic-supplyb.
Quantity-supplied-responds-only-slightly-to-changes-in-the-pricei.
Inelastic-supplyc.
Supply-is-more-elastic-in-long-run1)
Time-periodi.
Determinant-of-price-elasticity-of-supplyd.
Always-positive1)
Percentage-change-in-quantity-supplied,-divided-by-the-percentage-
change-in-price
i.
Same-as-demand1)
Midpoint-methodii.
iii.
Computing-price-elasticity-of-supplye.
Price-elasticity-of-supply->-11)
An-increase-in-price-leads-to-a-large-decrease-in-quantity-
supplied
2)
Supply-is-elastici.
Price-elasticity-of-supply-<-11)
An-increase-of-price-leads-to-a-small-decrease-in-quantity-
supplied
2)
Supply-is-inelasticii.
Price-elasticity-of-demand-=-11)
An-increase-of-price-by-x%-leads-to-an-x%-decrease-in-quantity-
supplied
2)
Supply-has-unit-elasticityiii.
Price-elasticity-of-supply-=-01)
Supply-curve-is-vertical-2)
An-increase-of-price-does-not-change-the-quantity-supplied3)
Supply-is-perfectly-inelasticiv.
Price-elasticity-of-supply=-infinity1)
Supply-curve-is-horizontal2)
At-a-price-above-equilibrium,-the-quantity-demanded-is-
infinie,-at-the-exact-price,-the-producers-will-supply-any-
quantity,-below-the-equilibrium,-the-quantity-suppliedis-zero
3)
Supply-is-perfectly-elasticv.
Variety-of-supply-curvesf.
The-Elasticity-of-SupplyII.
Three-Applications-of-Supply,-Demand,-and-ElasticityIII.
When-you-move-down-the-y-axis-it-becomes-inelastic.-On-the-demand-curve.-
Horizontal-=-elastic-
Vertical-=-inelastic-
All-curves-have-some-of-both-though.-Depending-on-the-point.-
Points-with-high-quantity-low-price-=-Inelastic-on-demand-curve
High-price-low-quantity-=-elastic-
High-price-and-high-quantity-=-inelastic-
Low-price-low-quantity-=-elastic-
Supply
Starting-q-small,-change-in-percentage-will-be-larger.-
Q-being-small-=-elastic
Decrease-in-supply:-large-increase-in-price
Short-run:-supply-and-demand-are-inelastic
Decrease-in-supply:-mall-increase-in-price
Long]run:-supply-and-demand-are-elastic
Chapter(5
Friday,-September- 11,-2015 1:42-PM
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