ECON 101 1st Edition Lecture 4 Outline of Current LectureI. 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 ElasticityDeterminants: • 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 Demandpercent 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 DemandPercent 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 AElasticity of supplychange 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 flatterNOT ON MIDTERM: PROFIT= total revenue - total cost value of output - value of factors of productionfactors of production:• land • labor: use of human work ethic to produce product • capital: produced means of production ◦ livestock◦ plow ◦ seedsTechnical 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
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