BIOM 121 1st Edition Lecture 7 You need a pencil scantron sheet and ID card for the exam I Elasticities A Elasticity and Inelasticity An elastic supply curve is relatively flat An inelastic supply curve is relatively straight First graph is elastic demand and inelastic supply o Seller bears more of the tax burden o Second graph is inelastic demand and elastic supply o Buyer bears more of the tax burden These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute o B More Applications of Elasticity Total revenue Price x Quantity P x Q o Say price goes up and quantity goes down significantly elastic o If demand is elastic then an increase in price will reduce total revenue o Say the price goes up significantly and the quantity goes down a small amount inelastic o If demand is inelastic then an increase in price will raise total revenue If prices rise then quantity demand falls C One more Application of Elasticity Graph 1 demand and supply are both fairly elastic o Relatively large change in Q o Could create more DWL o Graph 2 demand and supply are both fairly inelastic o Relatively small change in Q o Easier to raise tax revenue o DWL eliminating transactions when the willingness to pay exceeds the cost of production Consumers are willing to pay the higher prices when markets are inelastic D Suppose incomes rise and the elasticity of income 2 5 Big increase in Demand 1 Is this a big or small increase in demand o Big 2 What happens to the market price o Price goes up 3 What happens to the quantity transacted o Goes up o E Suppose the cross price elasticity 1 5 and price of other good rises An increase in tuition is going to reduce price on textbooks then these two goods are complements What happens to the price and quantity o They both go down In a perfectly competitive market there is no DWL F Surplus in Quantity G Price Floor and Ceiling Price floor by law you aren t allowed to charge a price below a certain level o Price ceiling by law you aren t allowed to charge a price above a certain level o
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