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UO ECON 201 - Elasticities
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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 supplyo Seller bears more of the tax burdeno- Second graph is inelastic demand and elastic supplyo 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.oB.) More Applications of Elasticity- Total revenue = Price x Quantity (P x Q)o Say price goes up and quantity goes down significantly = elastico 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 = inelastico If demand is inelastic, then an increase in price will raise total revenue - If prices rise then quantity demand fallsC.) One more Application of Elasticity- Graph 1 = demand and supply are both fairly elastico Relatively large change in Qo Could create more DWLo- Graph 2 = demand and supply are both fairly inelastic o Relatively small change in Qo Easier to raise tax revenueo- 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- Bigincrease 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 transactedo Goes upoE.) 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


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