Econ 1102 Micro Review 2 Page 1 of 3 Outline A Calculating Elasticity HW1 Q14 Q16 B Consumer and Producer Surplus HW2 Q1 Q3 C Other Questions about class this week A Calculating Elasticity Price 10 5 3 5 6 8 Quantity What is the elasticity of supply and what is the elasticity of demand NOTE YOU DO NOT NEED TO KNOW HOW TO DO THIS FOR 1102 BUT IF YOU RE CURIOUS HERE YOU GO When we calculate the change in quantity we use the midpoint method the difference divided by the midpoint q1 q2 q1 q2 2 and we do the same thing for price Elasticity change in quantity change in price q1 q2 p1 p2 q1 q2 p1 p2 2 2 p1 p2 q1 q2 2 q1 q2 p1 p2 2 q1 q2 p1 p2 q1 q2 p1 p2 Econ 1102 Micro Review 2 Page 2 of 3 Demand points 5 10 and 8 5 Elasticity of demand note that these are quantity price 5 8 10 5 5 8 10 5 3 15 13 5 9 13 Supply points 3 5 and 6 10 Elasticity of supply 3 6 5 10 3 6 5 10 3 15 9 5 1 B Consumer and Producer Surplus 10 Price Supply 6 4 CS PS Demand 2 a What is consumer s surplus Area of triangle 2 10 6 4 b What is producer s surplus Area of triangle 2 6 4 2 c What is total surplus 4 2 6 5 Quantity Econ 1102 Micro Review 2 Page 3 of 3 Additional Questions Q1 Suppose supply is P 2Qsupply 8 Demand P 20 2Qdemand What is consumer and producer surplus What is total surplus First we solve for the competitive equilibrium 2Q 8 20 2Q 4Q 12 Q 3 P 2 3 8 14 So we know that the base of both triangles will be 3 The supply curve hits the y axis at 8 and the demand curve hits the y axis at 20 so CS 3 20 14 9 PS 3 14 8 9 TS 9 9 18 Q2 Sara a student is willing to spend 2 hours a week tutoring if she is paid 15 hour At 30 hour she is willing to spend 5 hours a week tutoring What is her elasticity of supply Is it elastic or inelastic 2 5 15 30 2 5 15 30 3 45 7 15 3 3 7 9 7
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