Lecture 4: Elasticity

Size: px
Start display at page:

Download "Lecture 4: Elasticity"

Transcription

1 Lecture 4: Elasticity September 13, 2016

2 Overview Course Administration Ripped from the Headlines Producer Surplus Profit Demand Curves Are Not Linear Elasticity and Policy Many Types of Elasticity Paper Assignment Recap

3 Course Administration 1. Return problem sets 2. Problem Set 3 posted 3. Some changes to RFH schedule I ed all relevant parties 4. Any questions or outstanding issues?

4 Problem Set 1: Moving Along the Demand Curve I buy new socks every month, but this month the price increased from $7 per pair to $10.50 per pair. As a result, my demand decreased (moved left on the demand curve), and I only bought one pair instead of two. I like shopping at J. Crew. The price of my favorite shirts just increased, which means I can afford to buy fewer of them I moved up the demand curve. My demand for avocados increases in the summer as the price decreases in comparison to prices in the winter. demand is the total quantity demanded at a specific price, not the entire curve

5 Problem Set 1: Shifts of the Demand Curve My personal demand for raincoats shifted when I moved from Arizona to Washington, DC. This was a shift in my demand curve because my demand increased at any price. Downward shift in demand for Chipotle with news about the E. Coli outbreak My demand for Red Bull shifted inward after I read an article that detailed the potentially unhealthy side effects of drinking large amounts of it.

6 How What You re Learning is Policy-Relevant Ripped from Headlines presentation(s) As a reminder, next week Afternoon Finder Presenter Haley Dunn Amanda Swanson Sarita Sapkota Alex King Evening Finder Presenter Michael Steinberg Kaitlin Smith Hope Ferrari Catalina Reguerin

7 Why is Producer Surplus Profit? Recall: producer surplus is

8 Why is Producer Surplus Profit? Recall: producer surplus is difference between price received and price at which producers are willing to sell

9 Why is Producer Surplus Profit? Recall: producer surplus is difference between price received and price at which producers are willing to sell We will later learn that π = TR TC We will also later learn that PS = TR VC The difference is the fixed costs!

10 Demand Curves are Not Linear 1. What do we mean by linear? 2. Implications of linear curve 3. Building a non-linear curve 4. Example of why the shape matters

11 What Do We Mean By Linear? A linear function can be written as y = mx + b If b is zero (y = mx), then a 5-unit change in x change in y equal to 5*1-unit change in x If b is not zero, this isn t exactly true. However, the slope is always the same everywhere

12 Implications of a Linear Demand Curve There is a price sufficiently high that no one wants to consume the good At a price of zero, there is a finite quantity demanded Implies that many small changes in price always have the same impact as an equivalent large change in price

13 Implications of a Linear Demand Curve There is a price sufficiently high that no one wants to consume the good At a price of zero, there is a finite quantity demanded Implies that many small changes in price always have the same impact as an equivalent large change in price this may be quite wrong

14 Where a Demand Curve Comes From Thanks to Hal Varian s textbook Let s assume we re interested in the market for apartments in a medium-sized college town. Further assume that there are two types of apartments: near and far from university near apartments are better if you don t get an apartment near, you can get one far at a known fixed price all apartments are identical each person wants only one apartment We are interested in the price of the near apartments.

15 Putting Together a Demand Curve Reservation price is the maximum willingness to pay for something What is the highest reservation price of anyone in this market? this is the top of the demand curve As we lower the price one dollar, how many additional people want an apartment? This is Q Another dollar? This is the next (Q, P) on the curve

16 P Putting Together a Demand Curve: In Pictures Q

17 P Putting Together a Demand Curve: In Pictures Q

18 P Putting Together a Demand Curve: In Pictures Q

19 P Putting Together a Demand Curve: In Pictures Q

20 P Putting Together a Demand Curve: In Pictures Q

21 P Putting Together a Demand Curve: In Pictures Q

22 P With Many Steps, Imagine a Curve Q

23 Why the Shape of the Curve Matters: Avocados! 1914 US puts limits on imports of Mexican avocados 1994 North American Free Trade Agreement (NAFTA) passes 2004 USDA agrees to year-round avocado imports from Mexico Domestic producers of avocados form expectations from part of demand curve they observe except that increase in Q will lead to decline in P What happens?

24 Why the Shape of the Curve Matters: Avocados! 1914 US puts limits on imports of Mexican avocados 1994 North American Free Trade Agreement (NAFTA) passes 2004 USDA agrees to year-round avocado imports from Mexico Domestic producers of avocados form expectations from part of demand curve they observe except that increase in Q will lead to decline in P What happens? Almost no change in P, big increase in Q

25 Three (Not Mutually Exclusive) Explanations Or, Is Everything We ve Learned Wrong? 1. Demand curve is not linear 2. Price for big customers includes reliability of supply, so true price fell Q 3. Demand increases

26 E.1.: Demand Curve is Not Linear The World Before NAFTA P S USA, weather good D Q

27 E.1.: Demand Curve is Not Linear Where Is World Supply? P S USA, weather bad S USA, weather good D Q

28 E.1.: Demand Curve is Not Linear If You Think Demand is Linear, What Happens? P S USA, weather bad S USA, weather good D S World Q

29 E.1.: Demand Curve is Not Linear Why Is This Unlikely to Have Been the Case? P S USA, weather bad S USA, weather good D S World Q

30 E.1.: Demand Curve is Not Linear Curved Demand Is One Explanation P S USA, weather bad S USA, weather good D S World Q

31 E.2.: Price for big customers falls Elsewhere, I learned that after the introduction of Mexican avocados, big chains considered putting them in menus Major cost component for big chain input is reliability Mexican supply guarantees year-round supply And more reliable supply Thus, for big firms, outward supply shift understates true decrease in price, and can explain large change in Q

32 Elasticity Elasticity measures the change in quantity for a given change in price Absolutely crucial for policy decisions Formally, percentage change in one value relative to percentage change in another In math, elasticity is E = % Q % P

33 Drawing Perfectly Inelastic and Perfectly Elastic Demand and Supply

34 Elasticity and Policy Among the models that CBO uses to analyze the economic effects of changes in federal fiscal policy is a life-cycle growth model. That model requires an estimate of [the elasticity of labor supply with respect to price].... CBO incorporates into its analyses an estimate of the [this] elasticity that ranges from 0.27 to 0.53, with a central estimate of 0.40.

35 Elasticity and Policy Among the models that CBO uses to analyze the economic effects of changes in federal fiscal policy is a life-cycle growth model. That model requires an estimate of [the elasticity of labor supply with respect to price].... CBO incorporates into its analyses an estimate of the [this] elasticity that ranges from 0.27 to 0.53, with a central estimate of a 1% change in wages causes a 0.4% change in labor supply Arlington and Uber From the article, what policy is Arlington considering?

36 Elasticity and Policy Among the models that CBO uses to analyze the economic effects of changes in federal fiscal policy is a life-cycle growth model. That model requires an estimate of [the elasticity of labor supply with respect to price].... CBO incorporates into its analyses an estimate of the [this] elasticity that ranges from 0.27 to 0.53, with a central estimate of a 1% change in wages causes a 0.4% change in labor supply Arlington and Uber From the article, what policy is Arlington considering? How do you think this policy changes the total price of using transit?

37 Elasticity and Policy Among the models that CBO uses to analyze the economic effects of changes in federal fiscal policy is a life-cycle growth model. That model requires an estimate of [the elasticity of labor supply with respect to price].... CBO incorporates into its analyses an estimate of the [this] elasticity that ranges from 0.27 to 0.53, with a central estimate of a 1% change in wages causes a 0.4% change in labor supply Arlington and Uber From the article, what policy is Arlington considering? How do you think this policy changes the total price of using transit? Do you think it s a good idea to linearly extrapolate from the original demand curve?

38 Many Types of Elasticities Price elasticity of demand and supply Elasticity terms Income elasticity of demand Cross-price elasticity of demand

39 Elasticity of Supply and Demand Reminder In general, we expect E D

40 Elasticity of Supply and Demand Reminder In general, we expect E D < 0 And E S

41 Elasticity of Supply and Demand Reminder In general, we expect E D < 0 And E S > 0

42 Useful Elasticity Terms Unit elastic, E = 1: any percent changes in prices are equally matched by percent changes in Q

43 Useful Elasticity Terms Unit elastic, E = 1: any percent changes in prices are equally matched by percent changes in Q Elastic, > E > 1: responsiveness of numerator greater than change in denominator

44 Useful Elasticity Terms Unit elastic, E = 1: any percent changes in prices are equally matched by percent changes in Q Elastic, > E > 1: responsiveness of numerator greater than change in denominator Inelastic, 0 < E < 1: responsiveness of numerator less than change in denominator

45 Useful Elasticity Terms Unit elastic, E = 1: any percent changes in prices are equally matched by percent changes in Q Elastic, > E > 1: responsiveness of numerator greater than change in denominator Inelastic, 0 < E < 1: responsiveness of numerator less than change in denominator Perfectly inelastic, E = 0: no change in numerator for change in denominator

46 Useful Elasticity Terms Unit elastic, E = 1: any percent changes in prices are equally matched by percent changes in Q Elastic, > E > 1: responsiveness of numerator greater than change in denominator Inelastic, 0 < E < 1: responsiveness of numerator less than change in denominator Perfectly inelastic, E = 0: no change in numerator for change in denominator Perfectly elastic, E = : infinite change in numerator for change in denominator

47 Income Elasticity of Demand We are interested in the income elasticity of demand E D I = % QD % I What do you consume more of as your income increases?

48 Income Elasticity of Demand We are interested in the income elasticity of demand E D I = % QD % I What do you consume more of as your income increases? These are normal goods, and E > 0 (but E 1) What do you consume less of as your income increases?

49 Income Elasticity of Demand We are interested in the income elasticity of demand E D I = % QD % I What do you consume more of as your income increases? These are normal goods, and E > 0 (but E 1) What do you consume less of as your income increases? These are inferior goods, and E < 0. What does mean if E D I > 1

50 Income Elasticity of Demand We are interested in the income elasticity of demand E D I = % QD % I What do you consume more of as your income increases? These are normal goods, and E > 0 (but E 1) What do you consume less of as your income increases? These are inferior goods, and E < 0. What does mean if EI D > 1 Your consumption increases more than your income luxury good

51 Contemplate Yourself! With your neighbor, think of some examples What is the sign of the income elasticity of demand for fresh fruit and vegetable consumption? Give an example of a normal good and an inferior good

52 Cross-Price Elasticity of Demand How much does your demand for pluots change when the price of apricots increases?

53 Cross-Price Elasticity of Demand How much does your demand for pluots change when the price of apricots increases? E D XY = % QD X % P Y The responsiveness of quantity demanded of good X to price of good Y If EXY D is positive, are X and Y substitutes or complements?

54 Cross-Price Elasticity of Demand How much does your demand for pluots change when the price of apricots increases? E D XY = % QD X % P Y The responsiveness of quantity demanded of good X to price of good Y If EXY D is positive, are X and Y substitutes or complements? Policy examples, please!

55 Paper Overview Handout also posted online

56 What We Did This Class 1. Non-linear demand curves 2. Elasticity and policy 3. Many kinds of elasticity 4. Paper assignment

57 Next Class Turn in Problem Set 3 GLS, Chapter 4

Lecture 3: Elasticity

Lecture 3: Elasticity Lecture 3: Elasticity September 11, 2018 Overview Course Administration Ripped from the Headlines Demand Curves Are Not Linear Elasticity and Policy Many Types of Elasticity Paper Assignment Recap Course

More information

Lecture 3: Elasticity

Lecture 3: Elasticity Lecture 3: Elasticity September 12, 2017 Overview Course Administration Ripped from the Headlines Demand Curves Are Not Linear Elasticity and Policy Many Types of Elasticity Paper Assignment Recap Course

More information

Lecture 11: Market Power and Monopoly

Lecture 11: Market Power and Monopoly Lecture 11: Market Power and Monopoly November 13, 2018 Overview Course Administration Sources of Market Power Market Power and Marginal Revenue Profit Maximization and Market Power How a Firm With Market

More information

Lecture 11: Market Power and Monopoly

Lecture 11: Market Power and Monopoly Lecture 11: Market Power and Monopoly November 14, 2017 Overview Course Administration Sources of Market Power Market Power and Marginal Revenue Profit Maximization and Market Power How a Firm With Market

More information

Lecture 10: Market Power and Monopoly

Lecture 10: Market Power and Monopoly Lecture 10: Market Power and Monopoly November 8, 2016 Overview Course Administration Sources of Market Power Market Power and Marginal Revenue Profit Maximization and Market Power How a Firm With Market

More information

Lecture 1: Supply and Demand

Lecture 1: Supply and Demand Lecture 1: Supply and Demand August 29, 2017 Overview Course Administration Supply and Demand Market and Models Demand Supply Market Equilibrium Elasticity Course Administration 1. Expectations Call me

More information

To start we will look at the relationship between quantity demanded and price.

To start we will look at the relationship between quantity demanded and price. University of California, Merced ECO 1-Introduction to Economics Chapter 5 Lecture otes Professor Jason Lee I. Elasticity As we learned in Chapter 4, there is a clear relationship between the quantity

More information

Elasticity and Its Applications

Elasticity and Its Applications Elasticity and Its Applications 1. In general, elasticity is a. a measure of the competitive nature of a market. b. the friction that develops between buyer and seller in a market. c. a measure of how

More information

Welcome to Day 4. Principles of Microeconomics

Welcome to Day 4. Principles of Microeconomics Principles of Microeconomics Welcome to Day 4 What we did last class: 1) Law of demand and law of supply. 2) What equilibrium is. 3) Importance of incentives. 4) List of things that moves demand. 5) How

More information

CHAPTER 4, SECTION 1

CHAPTER 4, SECTION 1 DAILY LECTURE CHAPTER 4, SECTION 1 Understanding Demand What Is Demand? Demand is the willingness and ability of buyers to purchase different quantities of a good, at different prices, during a specific

More information

ECON 101 MIDTERM 1 REVIEW SESSION SOLUTIONS (WINTER 2015) BY BENJI HUANG

ECON 101 MIDTERM 1 REVIEW SESSION SOLUTIONS (WINTER 2015) BY BENJI HUANG ECON 101 MIDTERM 1 REVIEW SESSION SOLUTIONS (WINTER 2015) BY BENJI HUANG TABLE OF CONTENT I. CHAPTER 1: WHAT IS ECONOMICS II. CHAPTER 2: THE ECONOMIC PROBLEM III. CHAPTER 3: DEMAND AND SUPPLY IV. CHAPTER

More information

1 of 14 5/1/2014 4:56 PM

1 of 14 5/1/2014 4:56 PM 1 of 14 5/1/2014 4:56 PM Any point on the budget constraint Gives the consumer the highest level of utility. Represent a combination of two goods that are affordable. Represents combinations of two goods

More information

After studying this chapter you will be able to

After studying this chapter you will be able to 3 Demand and Supply After studying this chapter you will be able to Describe a competitive market and think about a price as an opportunity cost Explain the influences on demand Explain the influences

More information

1. Demand: willingness to buy a good or service and the ability to pay for it; how much of an item an individual is willing to purchase at each price

1. Demand: willingness to buy a good or service and the ability to pay for it; how much of an item an individual is willing to purchase at each price 1. Demand: willingness to buy a good or service and the ability to pay for it; how much of an item an individual is willing to purchase at each price 2. The two things needed for demand to exist are: willingness

More information

Chapter 3 Elasticity.notebook. February 03, Chapter 3: Competitive Dynamics and Government (Elasticity and Related Concepts)

Chapter 3 Elasticity.notebook. February 03, Chapter 3: Competitive Dynamics and Government (Elasticity and Related Concepts) Chapter 3: Competitive Dynamics and Government (Elasticity and Related Concepts) price elasticity of demand the responsiveness of a product's quantity demanded to a change in its price. Degree of Elasticity

More information

ECON 2100 (Summer 2015 Sections 07 & 08) Exam #2C

ECON 2100 (Summer 2015 Sections 07 & 08) Exam #2C ECON 21 (Summer 215 Sections 7 & 8) Exam #2C Multiple Choice Questions: (3 points each) 1. I am taking of the exam. C. Version C 2. A Price Control generally refers to A. who bears the burden of a tax,

More information

Text transcription of Chapter 4 The Market Forces of Supply and Demand

Text transcription of Chapter 4 The Market Forces of Supply and Demand Text transcription of Chapter 4 The Market Forces of Supply and Demand Welcome to the Chapter 4 Lecture on the Market Forces of Supply and Demand. This is the longest chapter for Unit 1, with the most

More information

CHAPTER 2: DEMAND AND SUPPLY

CHAPTER 2: DEMAND AND SUPPLY CHAPTER 2: DEMAND AND SUPPLY CIA4U Ms. Schirk 2.3 THE MARKET A market can be: A physical place where goods are bought and sold A collective reference to all the buyers and sellers of a particular good

More information

CHAPTER 2: DEMAND AND SUPPLY

CHAPTER 2: DEMAND AND SUPPLY 2.3 THE MARKET CHAPTER 2: DEMAND AND SUPPLY CIA4U Ms. Schirk A market can be: A physical place where goods are bought and sold A collective reference to all the buyers and sellers of a particular good

More information

Chapter 4. Demand, Supply and Markets. These slides supplement the textbook, but should not replace reading the textbook

Chapter 4. Demand, Supply and Markets. These slides supplement the textbook, but should not replace reading the textbook Chapter 4 Demand, Supply and Markets These slides supplement the textbook, but should not replace reading the textbook 1 What is a market? A group of buyers and sellers with the potential to trade 2 What

More information

Chapter 4: Individual and Market Demand. Chapter : Implications of optimal choice

Chapter 4: Individual and Market Demand. Chapter : Implications of optimal choice Econ 203 Chapter 4 page 1 Overview: Chapter 4: Individual and Market Demand Chapter 4 + 5.1-5.3: Implications of optimal choice What happens if changes? What happens to individual demand if a price changes?

More information

Elasticity and Its Application

Elasticity and Its Application Elasticity and Its Application Elasticity... is a measure of how much buyers and sellers respond to changes in market conditions allows us to analyze supply and demand with greater precision. Journal Question-Name

More information

Chapter 3 Quantitative Demand Analysis

Chapter 3 Quantitative Demand Analysis Chapter 3 Quantitative Demand Analysis EX1: Suppose a 10 percent price decrease causes consumers to increase their purchases by 30%. What s the price elasticity? EX2: Suppose the 10 percent decrease in

More information

ECON 1001 A. Come to the PASS workshop with your mock exam complete. During the workshop you can work with other students to review your work.

ECON 1001 A. Come to the PASS workshop with your mock exam complete. During the workshop you can work with other students to review your work. It is most beneficial to you to write this mock midterm UNDER EXAM CONDITIONS. This means: Complete the midterm in 1.5 hour(s). Work on your own. Keep your notes and textbook closed. Attempt every question.

More information

INTI COLLEGE MALAYSIA FOUNDATION IN BUSINESS INFORMATION TECHNOLOGY (CFP) ECO105: ECONOMICS 1 FINAL EXAMINATION: JANUARY 2006 SESSION

INTI COLLEGE MALAYSIA FOUNDATION IN BUSINESS INFORMATION TECHNOLOGY (CFP) ECO105: ECONOMICS 1 FINAL EXAMINATION: JANUARY 2006 SESSION ECO105 (F) / Page 1 of 12 Section A INTI COLLEGE MALAYSIA FOUNDATION IN BUSINESS INFORMATION TECHNOLOGY (CFP) ECO105: ECONOMICS 1 FINAL EXAMINATION: JANUARY 2006 SESSION Instructions: This section consists

More information

ECONOMICS 103. Topic 3: Supply, Demand & Equilibrium

ECONOMICS 103. Topic 3: Supply, Demand & Equilibrium ECONOMICS 103 Topic 3: Supply, Demand & Equilibrium Assumptions of the competitive market model: all agents are price takers, homogeneous products. Demand & supply: determinants of demand & supply, demand

More information

Copyright 2010 Pearson Education Canada

Copyright 2010 Pearson Education Canada What are the effects of a high gas price on buying plans? You can see some of the biggest effects at car dealers lots, where SUVs remain unsold while sub-compacts sell in greater quantities. But how big

More information

Chapter. Elasticity. Prepared by: Fernando & Yvonn Quijano Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair

Chapter. Elasticity. Prepared by: Fernando & Yvonn Quijano Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair Chapter 5 Elasticity Prepared by: Fernando & Yvonn Quijano 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair Elasticity 5 Chapter Outline Price Elasticity of Demand Slope

More information

Econ 200 Lecture 7 January 24, 2017

Econ 200 Lecture 7 January 24, 2017 1. Learning Catalytics Session 2. Elasticity and Total Revenue Econ 200 Lecture 7 January 24, 2017 3. Cross-Price and Income Elasticities 4. Elasticity of Supply 5. Consumer & Producer Surplus 1 Total

More information

AP Microeconomics Review With Answers

AP Microeconomics Review With Answers AP Microeconomics Review With Answers 1. Firm in Perfect Competition (Long-Run Equilibrium) 2. Monopoly Industry with comparison of price & output of a Perfectly Competitive Industry (which means show

More information

Economics 323 Microeconomic Theory Fall 2016

Economics 323 Microeconomic Theory Fall 2016 pink=a FIRST EXAM Chapter Two Economics 33 Microeconomic Theory Fall 06. The process whereby price directs existing supplies of a product to the users who value it the most is called the function of price.

More information

Version #1. Midterm exam 2 November 18th, Student Name: ID# Discussion #

Version #1. Midterm exam 2 November 18th, Student Name: ID# Discussion # Econ 101-Fall 2008, Lecture 2 Professor Kelly Midterm exam 2 November 18th, 2008 Version #1 Student Name: ID# Discussion # You have 75 minutes to answer the exam. The exam contains 12 binary choice questions

More information

Economics 323 Microeconomic Theory Fall 2016

Economics 323 Microeconomic Theory Fall 2016 peach=b FIRST EXAM Chapter Two Economics 33 Microeconomic Theory Fall 06. The process whereby price directs existing supplies of a product to the users who value it the most is called the function of price.

More information

Chapter 6 Lecture - Elasticity: The Responsiveness of Demand and Supply

Chapter 6 Lecture - Elasticity: The Responsiveness of Demand and Supply Chapter 6 Lecture - Elasticity: The Responsiveness of Demand and Supply 1 The Price Elasticity of Demand and Its Measurement We define price elasticity of demand and understand how to measure it. Although

More information

At the end of chapter 6, you will be able to:

At the end of chapter 6, you will be able to: 1 How to Study for Chapter 6 Supply and Equilibrium Chapter 6 introduces the factors that will affect the supply of a product, the price elasticity of supply, and the concept of equilibrium price and equilibrium

More information

Unit 2: Theory of Consumer Behaviour

Unit 2: Theory of Consumer Behaviour Name: Unit 2: Theory of Consumer Behaviour Date: / / Notations and Assumptions A consumer, in general, consumes many goods; but for simplicity, we shall consider the consumer s choice problem in a situation

More information

Amherst College Department of Economics Economics 111 Section 3 Fall 2012 Monday, September 17 Lecture: Elasticity

Amherst College Department of Economics Economics 111 Section 3 Fall 2012 Monday, September 17 Lecture: Elasticity Amherst College epartment of Economics Economics 111 Section 3 Fall 2012 Monday, September 17 Lecture: Elasticity Market emand and Market Supply Curves Market demand curve: How many cans of beer would

More information

Econ 200 Lecture 4 April 12, 2016

Econ 200 Lecture 4 April 12, 2016 Econ 200 Lecture 4 April 12, 2016 0. Learning Catalytics Session 62335486 1. Change in Demand 2. Supply and the Law of Supply 3. Changes in Supply 4. Equilibrium Putting Supply and Demand Together 5. Impact

More information

Topic 3. Demand and Supply

Topic 3. Demand and Supply Econ 103 Topic 3 page 1 Topic 3 Demand and Supply Text reference: Chapter 3 and 4. Assumptions of the competitive model. Demand: -Determinants of demand -Demand curves -Consumer surplus -Divisibility -

More information

ECON 200 Homework 3 Answer Key

ECON 200 Homework 3 Answer Key ECON 200 Homework 3 Answer Key Due Monday 4/26/10 1. Because of the baby boom, there are more people in the U.S. between the age of 40 and 66 than any other age group. There is concern about what is going

More information

FAQ: Decision-Making Strategies

FAQ: Decision-Making Strategies Q&A: Decision-Making Strategies Question 1: What is supply and demand? Answer 1: Supply refers to the actions of firms to create, distribute, and market goods and services. Firms create products that they

More information

Contents. Consumer Choice: Individual and Market Demand- Demand and Elasticity. I) Markets and Prices. II) Demand Side. III) The Supply Side

Contents. Consumer Choice: Individual and Market Demand- Demand and Elasticity. I) Markets and Prices. II) Demand Side. III) The Supply Side Consumer Choice: Individual and Market Demand- Demand and Elasticity Dr. Ashraf Samir Website: ashraffeps.yolasite.com Contents I) Markets and Prices II) Demand Side III) The Supply Side IV) Market Equilibrium

More information

4. Do your best to fit all your answers on the front side of the exam. If you need to use the back of a page, indicate that clearly.

4. Do your best to fit all your answers on the front side of the exam. If you need to use the back of a page, indicate that clearly. Midterm Intermediate Microeconomics Fall 2015 October 20, 2015 Name: Instructions 1. Answer all questions. 2. The exam will be graded out of 100 points. Points for each section and points for each question

More information

Chapter 4: Understanding Demand

Chapter 4: Understanding Demand SCHS SOCIAL STUDIES What you need to know UNIT TWO 1. What a competitive market is and how it is described by the supply and demand model 2. What a supply curve shows 3. The difference between a movement

More information

Elasticity and Its Applications. Copyright 2004 South-Western

Elasticity and Its Applications. Copyright 2004 South-Western Elasticity and Its Applications 5 Copyright 2004 South-Western Copyright 2004 South-Western/Thomson Learning Elasticity... allows us to analyze supply and demand with greater precision. is a measure of

More information

Chapter 4 DEMAND. Essential Question: How do we decide what to buy?

Chapter 4 DEMAND. Essential Question: How do we decide what to buy? Chapter 4: Demand Section 1 Chapter 4 DEMAND Essential Question: How do we decide what to buy? Key Terms demand: the desire to own something and the ability to pay for it law of demand: consumers will

More information

DEMAND. Economics Unit 2 Just the Facts Handout

DEMAND. Economics Unit 2 Just the Facts Handout DEMAND Economics Unit 2 Just the Facts Handout What is Demand? A market is a place where people buy and sell things. A market has two sides. There is a buying side and a selling side. The buying side of

More information

Multiple Choice questions /60 Problem 1 /20 Problem 2 /12 Problem 3 /8

Multiple Choice questions /60 Problem 1 /20 Problem 2 /12 Problem 3 /8 Econ 200 Midterm 1 Spring 2011 March 29 2011 Instructions : 1-) The exam is 65 minutes 2-) You have to provide detailed solution to each problem 3-) Any form of cheating (Peeking to other s exam, use your

More information

Bremen School District 228 Social Studies Common Assessment 2: Midterm

Bremen School District 228 Social Studies Common Assessment 2: Midterm Bremen School District 228 Social Studies Common Assessment 2: Midterm AP Microeconomics 55 Minutes 60 Questions Directions: Each of the questions or incomplete statements in this exam is followed by five

More information

Chapter 4 Review: Demand. CHAPTER 4 Graphic Organizer

Chapter 4 Review: Demand. CHAPTER 4 Graphic Organizer Chapter 4 Review: Demand CHAPTER 4 Graphic Organizer CHAPTER 4, SECTION 1 Key Concepts What Is Demand? A market is a place where people buy and sell things. A market has two sides. There is a buying side

More information

The total final is worth 30 points. Each question is worth 2 points, and each sub question is worth an equal share of the two points.

The total final is worth 30 points. Each question is worth 2 points, and each sub question is worth an equal share of the two points. Final PPA 723, Fall 2002 Professor John McPeak December 9 th, 2002 Name: The total final is worth 30 points. Each question is worth 2 points, and each sub question is worth an equal share of the two points.

More information

EQ: What is Income Elasticity of Demand?

EQ: What is Income Elasticity of Demand? EQ: What is Income Elasticity of Demand? Changes in Consumer Income shift the demand curve: Normal Goods goods that are more desirable to consumers; when people have more money, they buy more normal goods

More information

6) Consumer surplus is the red area in the following graph. It is 0.5*5*5=12.5. The answer is C.

6) Consumer surplus is the red area in the following graph. It is 0.5*5*5=12.5. The answer is C. These are solutions to Fall 2013 s Econ 1101 Midterm 1. No guarantees are made that this guide is error free, so please consult your TA or instructor if anything looks wrong. 1) If the price of sweeteners,

More information

This is what we call a demand schedule. It is a table that shows how much consumers are willing and able to purchase at various prices.

This is what we call a demand schedule. It is a table that shows how much consumers are willing and able to purchase at various prices. Demand Market: an institution or mechanism, which brings together buyers ("demanders") and sellers ("suppliers") of particular goods and services. The remainder of this unit assumes a perfectly competitive

More information

I can explain the law of demand and analyze changes in demand in response to determinants.

I can explain the law of demand and analyze changes in demand in response to determinants. I can explain the law of demand and analyze changes in demand in response to determinants. Success Criteria: Identify determinants of demand and accurately graph changes in demand. Determinants of Demand

More information

Demand & Supply of Resources

Demand & Supply of Resources Resource Markets 1 Demand & Supply of Resources Resource demand Firms demand resources As long as marginal revenue exceeds marginal cost To maximize profit Resource supply People supply resources To the

More information

Study Guide Final Exam, Microeconomics

Study Guide Final Exam, Microeconomics Study Guide Final Exam, Microeconomics 1. If the price-consumption curve of a commodity slopes downward how can you tell whether the consumer spends more or less on this commodity from her budget (income)?

More information

ELASTICITY OF DEMAND AND SUPPLY - MARKETS IN ACTION

ELASTICITY OF DEMAND AND SUPPLY - MARKETS IN ACTION WEEK 3 /LECTURE 3 NOTES ELASTICITY OF DEMAND AND SUPPLY - MARKETS IN ACTION Introduction We begin this session by examining elasticity, one of the most important concepts in economics. Let s assume that

More information

E-BOOK - ELASTICITY OF DEMAND FOR LABOUR

E-BOOK - ELASTICITY OF DEMAND FOR LABOUR 23 May, 2018 E-BOOK - ELASTICITY OF DEMAND FOR LABOUR Document Filetype: PDF 135.09 KB 0 E-BOOK - ELASTICITY OF DEMAND FOR LABOUR Price elasticity of demand (elasticity of demand) is a measure used in

More information

AP Microeconomics Chapter 3 Outline

AP Microeconomics Chapter 3 Outline I. Learning Objectives In this chapter students should learn: II. Markets III. Demand A. What demand is and how it can change. B. What supply is and how it can change. C. How supply and demand interact

More information

ELASTICITY AND ITS APPLICATION. J. Mao

ELASTICITY AND ITS APPLICATION. J. Mao ELASTICITY AND ITS APPLICATION J. Mao Elasticity Until now, we ve been talking about the direction in which quantities change. A downward-sloping demand: price é è quantity demanded ê In real life it is

More information

TheRevisionGuide (www.therevisionguide.com) is a free online resource for Economics and Business Studies.

TheRevisionGuide (www.therevisionguide.com) is a free online resource for Economics and Business Studies. TheRevisionGuide.com Accelerating your potential Economics Revision AS Economics Demand Notes by: Apsara Sumanasiri Student Name : Date:. TheRevisionGuide (www.therevisionguide.com) is a free online resource

More information

Microeconomics. Use the graph below to answer question number 3

Microeconomics. Use the graph below to answer question number 3 More Tutorial at Microeconomics 1. Opportunity costs are the values of the: a. minimal budgets of families on welfare b. hidden charges passed on to consumers c. monetary costs of goods and services *

More information

Microeconomics. Use the graph below to answer question number 3

Microeconomics. Use the graph below to answer question number 3 More Tutorial at Microeconomics 1. Opportunity costs are the values of the: a. minimal budgets of families on welfare b. hidden charges passed on to consumers c. monetary costs of goods and services *

More information

1. Demand: willingness to buy a good or service and the ability to pay for it; how much of an item an individual is willing to purchase at each price

1. Demand: willingness to buy a good or service and the ability to pay for it; how much of an item an individual is willing to purchase at each price 1. Demand: willingness to buy a good or service and the ability to pay for it; how much of an item an individual is willing to purchase at each price 2. Quantity demanded vs demand: quantity demanded is

More information

Professor Christina Romer SUGGESTED ANSWERS TO PROBLEM SET 2

Professor Christina Romer SUGGESTED ANSWERS TO PROBLEM SET 2 Economics 2 Spring 2018 rofessor Christina Romer rofessor David Romer SUGGESTED ANSWERS TO ROBLEM SET 2 1.a. In this problem we are dividing everything the household buys into two categories child care

More information

Chapter 6 Elasticity: The Responsiveness of Demand and Supply

Chapter 6 Elasticity: The Responsiveness of Demand and Supply Economics 6 th edition 1 Chapter 6 Elasticity: The Responsiveness of Demand and Supply Modified by Yulin Hou For Principles of Microeconomics Florida International University Fall 2017 The Price Elasticity

More information

Ch. 3 LECTURE NOTES Markets II. Demand

Ch. 3 LECTURE NOTES Markets II. Demand Ch. 3 LECTURE NOTES I. Markets A. A market, as introduced in Chapter 2, is an institution or mechanism that brings together buyers (demanders) and sellers (suppliers) of particular goods and services.

More information

Introduction to Agricultural Economics Agricultural Economics 105 Spring 2017 First Hour Exam Version 1

Introduction to Agricultural Economics Agricultural Economics 105 Spring 2017 First Hour Exam Version 1 1 Name Introduction to Agricultural Economics Agricultural Economics 105 Spring 2017 First Hour Exam Version 1 There is only ONE best, correct answer per question. Place your answer on the attached sheet.

More information

Microeconomics. Use the Following Graph to Answer Question 3

Microeconomics. Use the Following Graph to Answer Question 3 More Tutorial at www.dumblittledoctor.com Microeconomics 1. To an economist, a good is scarce when: *a. the amount of the good available is less than the amount that people want when the good's price equals

More information

ECON 200. Introduction to Microeconomics

ECON 200. Introduction to Microeconomics ECON 200. Introduction to Microeconomics Homework 3 Part I Name: [Multiple Choice] 1. A life-saving medicine without any close substitutes will tend to have (a) a. a small elasticity of demand. b. a large

More information

Chapter 2: The Basic Theory Using Demand and Supply. Multiple Choice Questions

Chapter 2: The Basic Theory Using Demand and Supply. Multiple Choice Questions Chapter 2: The Basic Theory Using Demand and Supply Multiple Choice Questions 1. If an individual consumes more of good X when his/her income doubles, we can infer that a. the individual is highly sensitive

More information

A.P. Microeconomics. In Class Review #2

A.P. Microeconomics. In Class Review #2 A.P. Microeconomics In Class Review #2 Pricing 1. Pricing system serves as a rationing device The market decides who gets g&s by which households are willing to pay the price for it!! Pricing a. Even when

More information

2007 Thomson South-Western

2007 Thomson South-Western Elasticity... allows us to analyze supply and demand with greater precision. is a measure of how much buyers and sellers respond to changes in market conditions THE ELASTICITY OF DEMAND The price elasticity

More information

1. Explain 2. Describe 3. Create 4. Interpret

1. Explain 2. Describe 3. Create 4. Interpret Law of Demand Section:- B Objectives 1. Explain the law of demand. 2. Describe how the substitution effect and the income effect influence decisions. 3. Create a demand schedule for an individual and a

More information

Chapter 1- Introduction

Chapter 1- Introduction Chapter 1- Introduction A SIMPLE ECONOMY Central PROBLEMS OF AN ECONOMY: scarcity of resources problem of choice Every society has to decide on how to use its scarce resources. Production, exchange and

More information

Macro Unit 1b. This is what we call a demand schedule. It is a table that shows how much consumers are willing and able to purchase at various prices.

Macro Unit 1b. This is what we call a demand schedule. It is a table that shows how much consumers are willing and able to purchase at various prices. Macro Unit 1b Demand Market: an institution or mechanism, which brings together buyers ("demanders") and sellers ("suppliers") of particular goods and services. Notice that the remainder of this unit assumes

More information

Micro Chapter 7 study guide questions

Micro Chapter 7 study guide questions Micro Chapter 7 study guide questions Multiple Choice Identify the choice that best completes the statement or answers the question. 1. A 15 percent increase in the price of beef reduces the quantity of

More information

Managerial Economics 2013 Block Course by MFZ,TUT CH 3& 4 in your text book. Please you need text book okay??

Managerial Economics 2013 Block Course by MFZ,TUT CH 3& 4 in your text book. Please you need text book okay?? CH 3& 4 in your text book. Please you need text book okay?? ! " " " #! $! % % & & & ' ( ) # % !* + % ( , % % !* + % ( ' -."/." 01. ! 2 3, ) 4 " 4 " 5 3, ) %, % ", % " " " " #!! % 3 ) ' " !* + % ( , % %

More information

Perfectly Competitive Markets

Perfectly Competitive Markets C H A P T E R 8 Profit Maximization and Competitive Supply CHAPTER OUTLINE 8.1 Perfectly Competitive Markets 8.2 Profit maximization 8.3 Marginal Revenue, Marginal Cost, and Profit Maximization 8.4 Choosing

More information

CIE Economics AS-level

CIE Economics AS-level CIE Economics AS-level Topic 2: Price System and the Microeconomy a) Demand and supply curves Notes Demand: Effective demand is the quantity that consumers are willing to buy at the current market price.

More information

ECON 251 Exam #1 Spring 2013

ECON 251 Exam #1 Spring 2013 ECON 251 Exam #1 Spring 2013 1. A is an example of a labor resource, while is an example of a capital resource. a. Schoolteacher; a computer programmer b. Football player; tree c. Business owner; checking

More information

Market structures. Why Monopolies Arise. Why Monopolies Arise. Market power. Monopoly. Monopoly resources

Market structures. Why Monopolies Arise. Why Monopolies Arise. Market power. Monopoly. Monopoly resources Market structures Why Monopolies Arise Market power Alters the relationship between a firm s costs and the selling price Charges a price that exceeds marginal cost A high price reduces the quantity purchased

More information

FIRMS IN COMPETITIVE MARKETS

FIRMS IN COMPETITIVE MARKETS 14 FIRMS IN COMPETITIVE MARKETS WHAT S NEW IN THE FOURTH EDITION: The rules for profit maximization are written more clearly. LEARNING OBJECTIVES: By the end of this chapter, students should understand:

More information

Chapter 16 The Labor Market Effects of International Trade and Production Sharing

Chapter 16 The Labor Market Effects of International Trade and Production Sharing Chapter 16 The Labor Market Effects of International Trade and Production Sharing Summary Freeing up resources so that they can be used more productively in other industries is the logic behind international

More information

LEARNING UNIT 6 LEARNING UNIT 6

LEARNING UNIT 6 LEARNING UNIT 6 DATE: March 2014 MODULE: PMIC6111 TEXTBOOK REFERENCE: pg 153-173 THEME: ELASTICITY OBJECTIVES: BY END OF YOU SHOULD KNOW THE FOLLOWING: DEFINE ELASTICITY EXPLAIN MEANING AND SIGNIFICANCE OF PRICE ELASTICITY

More information

Law of Supply. General Economics

Law of Supply. General Economics Law of Supply General Economics Supply Willing to Offer to the Market at Various Prices during Period of Time Able to Offer to the Market at Various Prices during Period of Time General Economics: Law

More information

AP Microeconomics Chapter 6 Outline

AP Microeconomics Chapter 6 Outline I. Introduction AP Microeconomics Chapter 6 A. Learning Objectives In this chapter students should learn: 1. What price elasticity of demand is and how it can be applied. 2. The usefulness of the total

More information

Microeconomics. More Tutorial at

Microeconomics.  More Tutorial at Microeconomics 1. Suppose a firm in a perfectly competitive market produces and sells 8 units of output and has a marginal revenue of $8.00. What would be the firm s total revenue if it instead produced

More information

Chapter 2 The Basics of Supply and Demand

Chapter 2 The Basics of Supply and Demand Chapter 2 The Basics of Supply and Demand Read Pindyck and Rubinfeld (2013), Chapter 2 Microeconomics, 8 h Edition by R.S. Pindyck and D.L. Rubinfeld Adapted by Chairat Aemkulwat for Econ I: 2900111 Chapter

More information

Producer Theory - Monopoly

Producer Theory - Monopoly Producer Theory - Monopoly Mark Dean Lecture Notes for Fall 2009 Introductory Microeconomics - Brown University 1 Introduction Up until now, we have assumed that all the agents in our economies are price

More information

Exercise questions. ECON 102. Answer all questions. Multiple Choice Questions. Choose the best answer.

Exercise questions. ECON 102. Answer all questions. Multiple Choice Questions. Choose the best answer. Exercise questions. ECON 102 Answer all questions. Multiple Choice Questions. Choose the best answer. 1.On Saturday morning, you rank your choices for activities in the following order: go to the library,

More information

Use the figure below to answer questions 1 and 2: D pounds of vegetables. A. 120 pounds of vegetables.

Use the figure below to answer questions 1 and 2: D pounds of vegetables. A. 120 pounds of vegetables. Use the figure below to answer questions 1 and 2: The figure shows the production possibilities curve for Hamid, who can produce two goods, meat and vegetables. 1. Refer to the figure above. What is the

More information

ECON 251 DISTANCE LEARNING: MAY 2014 MIDTERM EXAM INSTRUCTIONS

ECON 251 DISTANCE LEARNING: MAY 2014 MIDTERM EXAM INSTRUCTIONS ECON 251 DISTANCE LEARNING: MAY 2014 MIDTERM EXAM Student s Name: Proctor s Name: Date: To the student: INSTRUCTIONS You have a maximum of 2 hours to complete the exam The exam is closed notes & book.

More information

Chapter 17: Labor Markets

Chapter 17: Labor Markets Chapter 17: Labor Markets Econ 102: Introduction to Microeconomics 1 1.1 Goals of this class Goals of this class Learn how employment and wages are determined in equilibrium. Learn what can shift labor

More information

Introduction. Consumer Choice 20/09/2017

Introduction. Consumer Choice 20/09/2017 Consumer Choice Introduction Managerial Problem Paying employees to relocate: when Google wants to transfer an employee from its Seattle office to its London branch, it has to decide how much compensation

More information

Figure 4 1 Price Quantity Quantity Per Pair Demanded Supplied $ $ $ $ $10 2 8

Figure 4 1 Price Quantity Quantity Per Pair Demanded Supplied $ $ $ $ $10 2 8 Econ 101 Summer 2005 In class Assignment 2 Please select the correct answer from the ones given Figure 4 1 Price Quantity Quantity Per Pair Demanded Supplied $ 2 18 3 $ 4 14 4 $ 6 10 5 $ 8 6 6 $10 2 8

More information

Microeconomics, Module 4: Consumers in the Marketplace. Practice Problems. (The attached PDF file has better formatting.) Updated: July 10, 2006

Microeconomics, Module 4: Consumers in the Marketplace. Practice Problems. (The attached PDF file has better formatting.) Updated: July 10, 2006 Microeconomics, Module 4: Consumers in the Marketplace Practice Problems (The attached PDF file has better formatting.) Updated: July 10, 2006 Exercise 4.1: Price Elasticity of Demand The price of a good

More information

學號 姓名 學號 姓名 學號 姓名 學號 姓名 學號 姓名

學號 姓名 學號 姓名 學號 姓名 學號 姓名 學號 姓名 小組成員 Section I. Multiple Choice Questions 1. If there is pollution in producing a product, then the market equilibrium price A) is too high and equilibrium quantity is too low. B) and equilibrium quantity

More information