AREC 202 Lecture Notes - Economic Surplus
25 Mar 2014
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Net benefits of consumption for all units consumed. Nb: total value (max wtp) for units purchased minus what you actually needed to pay. High likelihood of another question like this on the next midterm. The amount that quantity changes given changes in price (% qd) / (% p) Goods with elastic demand (own price elasticity of d) Goods with inelastic demand (own price elasticity of d) D = (% q) / (% p) Let"s say if p of cigarettes goes up 20%, qd of cigarettes goes down by 8% Market for candy bars is more elastic than cigarettes. For every 1% change in price, qd changes by 1. 5% for candy bars. For every 1% change in price, qd changes by . 4% for cigarettes. Due to the law of demand, when p goes up, qd goes down. D = -. 4, economists just call it . 4. Focus on numerator (q2 q1) / [(q2 + q1) / 2] x 100.
