UNC-Chapel Hill ECON 101 - Supply & Demand: Elasticity (2 pages)

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Supply & Demand: Elasticity



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ECON 101 1st Edition Lecture 4 Outline of Current Lecture I Elasticity cont Current Lecture Price elasticity of Demand dq dp P Q the arch elasticity is the pprox of the true price of elasticity used only when we don t know the slope of the demand curve Price of Elasticity Determinants Number and closeness of substitutes Importance in consumer s budget How narrowly the commodity is defined The nature of the good necessities have low elasticity of demand luxury has high price of elasticity of demand The passage of time given time to adjust people will find substitutes Supply and Demand Elasticities Income Elasticity of Demand percent change in quantity demand percent change in income of demand change in quantity change in income Income quantity Normal good positive income elasticity of demand normal good versus inferior good demand if its greater than zero or not Cross Price Elasticity of Demand Percent change in good A percent change in good B change in quantity pf good A change in price of good B Price of good B Quantity go good A Elasticity of supply change in quantity of supply quantity of supply divided by change in price over price change in quantity change in price price quanity elasticity between 0 1 steep supply curve inelastic supply curve elastic supply curve 1 is flatter NOT ON MIDTERM PROFIT total revenue total cost value of output value of factors of production factors of production land labor use of human work ethic to produce product capital produced means of production livestock plow seeds Technical Efficiency Economic Efficiency finding the cheapest way among technically efficient ways to produce output TOTAL COST direct costs implicit cost total opportunity cost the value of the next best thing not chosen



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