Econ 1101 1st Edition Lecture 8 Outline of Last Lecture II Perfectly Inelastic a Supply b Demand III Perfectly Elastic a Demand IV Inbetween Cases V Short Run vs Long Run Elasticity VI Demand Determinants Outline of Current Lecture I Income Elasticity of Demand II Normal Goods III EconLand IV Marginal Cost V Marginal Reservation Price Current Lecture What makes a good more elastic Well the longer time period you have and the more specific the good For example food isn t elastic but Farmer Joe s Brats are Income Elasticity of Demand IED Elasticity Income Change in Quantity Demanded Change in Income If IED is 0 the good is a NORMAL good If IED is 0 the good is a LUXURY good Normal Goods Necessities 0 Elasticity Income 1 Luxuries Elasticity Income 1 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 EconLand As economists we cannot always study the real world how it is so we must create an imaginable place where we create and control the variables EconLand is our class economy The reasons for Econland are simple It tells us something informative and it is useful to examine efficiency of competitive markets an impacts of government policies Let s suppose only the D Demand people eat WIDGETS A Demand person can only consume 1 Widget Each has a reservation price for one widget the amount of dollars one would give up to get one widget The S Suppliers do not eat any widgets but they know how to make them They only make at most 1 widget and they won t work for free Their cost is the amount of dollars the demand is willing to give her so she is willing to make the widget Marginal Cost The cost of the next one in think of additional costs to sellers as a group due to the next unit Marginal Reservation Price The value of the next one in or additional value to buyers as a group that the next unit provides Often referred to as marginal benefit Consumer Surplus of a particular buyer reservation price price paid Producers Surplus of seller price received cost
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