Washburn8. September 11, 2014Econ 101- Turchio Price Elasticityo Eta= negative change in Quantity over change in price times Price over quantity. o Equal to negative percent change in quantity over percent change in priceo Determinates of Price Elasticityo Number and proximity of substituteso If no substitutes, very low elasticityo Importance in consumer’s budgeto The higher importance in the budget, the higher the demand elasticityo How narrowly the commodity is definedo The nature of the goodo Necessities have low elasticity o Luxuries have high elasticityo The passage of Timeo Given time to adjust, people will find substituteso Income Elasticity of Demando Percent Change in Quantity over percent change in incomeo Equal to change in quantity over change in income times income over quantityo Normal goods- When income rises, demand riseso Inferior goods- when income rises, demand decreaseso Cross-price Elasticity of Demando Percent change in Quantity A over percent change in price Bo Equals change in quantity A over change in Price B times Price B over Quantity Ao Eta supply= change in Quantity S over quantity s. All over change in price over price.o Equals change in Quantity S over change in price times price over quantity S2ND MIDTERMo Definition of Profitso Total revenue - Total costo Value of output minus value of factors of productiono Includes opportunity costo Goals are to maximize profitso Factors of productiono Lando Laboro Capitalo produced means of productiono Modern production can make more outputs with less inputs than traditional productiono Reduction of labor costso Technical EfficiencyWashburno Economic Efficiencyo Finding the cheapest way among technically efficient ways to produce outputo Total Costo Direct Costs + Implicit costso Equal to total opportunity costo Direct Costo Labor cost, materialso Implicit Costo Opportunity cost of the next best thing not
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