ECON 1P91 Chapter Notes - Chapter 4: Demand Curve, Hot Tub, Independent Goods

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Published on 28 Sep 2011
School
Brock University
Department
Economics
Course
ECON 1P91
Class 4!!!! Chapter 3 ! ! Sept. 22, 2011
If surplus or shortage exists, market forces always ensures system moves to
equilibrium.
Shortage
- Q^d > Q^s
- At $15, Q^d = 16; Q^s = 10
- Q^d - Q^s = 6 [Excess Demand]
- Price rise to equilibrium
-Refer to diagram 1
Surplus
- Q^s > Q^d
- At $30, Q^d = 8.5; Q^s = 25
- Q^s - Q^d = 16.5 [excess supply]
- Prices fall to equilibrium
-Refer to diagram 2
When shifting both curves, final outcome is dependent on:
-Magnitude of shifts
-Direction of shifts
**The change on one of the axes will be ambiguous
Increase Demand, Increase Supply
- Quantity goes up
- Price is Ambiguous
Refer to diagram 3
Decrease Demand, Increase Supply
- Price goes down
- Quantity is Ambiguous
Refer to diagram 4
Chapter 4 - Elasticity
- Difference between Slope and Elasticity
- Price Elasticity of Demand
- Price Elasticity of Supply
- Cross-Price Elasticity of Demand
- Income Elasticity of Demand
- Elasticity in the Short and Long-run
-Refer to diagram 5 (Non-Responsive) and 6 (Responsive)
- Same change in price
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- (Non-Responsive) - Small Change in Qty
- (Responsive) - Large change in Qty
Elasticity of Demand
- (Non-Responsive) - Inelastic - Nd < 1
- (Responsive) - Elastic - Nd > 1
- Elasticity != Slope
- Nd = (%Q^d1-Q^d0)/(%P1-P0)
- Slope = Delta P / Delta Q
Elasticities change along demand curve | Straight line demand curve has constant slope
Refer to diagrams 7 and 8
Refer to diagrams 9(Perfectly Elastic Demand Nd = Inf) and 10 (Perfectly Inelastic
Demand Nd = 0)
Nd > 1 - Elastic ! ! P(up) -> TR(down)
!!!!P(down) -> TR(up)
Nd = 1 - Unit Elastic!! P(up) -> TR(same)
!!!!P(down) -> TR(same)
Nd < 1 - Inelastic! ! P(up) -> TR(up)
!!!!P(down) -> TR(down)
To Standardize the Value
- Use a % change
- Difficulties:
- Absolute Value
- Numbering differs on axes
-Refer to diagrams 11 and 12
- Both represent a 100% change
- Need a weighted Base
- Refer to diagram 13
-Price:
-100 -> 75 = 25%
-75 -> 100 = 33.3%
-Quantity:
-12 -> 24 = 100%
-24 -> 12 = 50%
% DELTA Formula with a weighted base:
((NEW - OLD)/Average)*100
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Document Summary

If surplus or shortage exists, market forces always ensures system moves to equilibrium. At , q^d = 16; q^s = 10. Q^d - q^s = 6 [excess demand] Q^s - q^d = 16. 5 [excess supply] When shifting both curves, nal outcome is dependent on: **the change on one of the axes will be ambiguous. Refer to diagram 5 (non-responsive) and 6 (responsive) (non-responsive) - inelastic - nd < 1. (responsive) - elastic - nd > 1. Slope = delta p / delta q. Elasticities change along demand curve | straight line demand curve has constant slope. Refer to diagrams 9(perfectly elastic demand nd = inf) and 10 (perfectly inelastic. % delta formula with a weighted base: ((new - old)/average)*100. The elasticity of demand of white teddy bears. Nd = (((4-3) / ((4+3) / 2)) * 100) / (((5-6) / ((5+6) / 2) * 100) In the elastic region, when the price decreases [p(down)], total revenue [tr(up)]