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

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Published on 28 Sep 2011

Department

Economics

Course

ECON 1P91

Professor

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

- (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

## 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)]