MSU EC 201 - Chap6 (31 pages)

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Chap6



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Chap6

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Pages:
31
School:
Michigan State University
Course:
Ec 201 - Introduction to Microeconomics
Introduction to Microeconomics Documents

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Krugman and Wells Chapter 6 Steven J Haider EC201 Spring 2015 Overview Chaps 3 5 lay out how competitive markets work Chap 3 shifting S D Chap 4 welfare Chap 5 price and quantity controls This chapter how much do prices and quantities change Depends on the slopes of S and D and how much they shift We measure these features with elasticities Note I cover the same material in the chapter but take a pretty different tack Caution if you are uncomfortable with math this week may look daunting Let us help you It isn t that bad p2 Example 1 daily sandwich demand P P 6 5 D1 220 250 D2 Q At 5 you sell 250 for daily revenue of 1250 At 6 you sell 220 for daily revenue of 1320 Maybe no close substitutes nearby 50 250 Q At 5 you sell 250 for daily revenue of 1250 At 6 you sell 50 for daily revenue of 300 Maybe another sandwich shop nearby You are a pastrami shop owner on Grand River You re thinking about raising your price from 5 to 6 Should you p3 Example 1 daily sandwich demand P P 6 5 D1 220 250 D2 Q At 5 you sell 250 for daily revenue of 1250 At 6 you sell 220 for daily revenue of 1320 Maybe no close substitutes nearby 50 250 Q At 5 you sell 250 for daily revenue of 1250 At 6 you sell 50 for daily revenue of 300 Maybe another sandwich shop nearby You are a pastrami shop owner on Grand River You re thinking about raising your price from 5 to 6 Should you p4 Example 2 recession and groceries P P 4 D2 Milk D1 D2 Q Quantity drops a little Recession causes income to decline and milk is a normal good Perhaps small shift in demand milk is central to the diet of many D1 Q Dove ice cream bars Quantity drops a lot Recession causes income to decline and Dove bars are a normal good Perhaps large shift in demand pretty easy to do without If you are a grocer it may be very useful to know how buying patterns change over the business cycle p5 Example 2 recession and groceries P P 4 D2 Milk D1 D2 Q Quantity drops a little Recession causes income to decline and milk is a normal good Perhaps



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