UA EC 110 - Elasticity (3 pages)

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Lecture number:
Lecture Note
University of Alabama
Ec 110 - Prin of Microeconomics

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ECON 110 Lecture 8 Outline of Last Lecture I Review of Exam 1 II Review of old material Outline of Current Lecture I Clicker Review question on Equilibrium calculations II The Economics of Valentines Day III Elasticity Measuring the response in the market a Demand Elasticity Price Elasticity Income Elasticity Cross Price Elasticity b Supply Elasticity Price Elasticity c Examples d Surge Pricing e Elasticity vs Cost Differences f Elasticity Equation i Equation ii Example g 3 Factors i Time ii Substitutes iii Significance Current Lecture Clicker Question The market for a six pack of Dasani bottled water is composed of the following equations Demand equation Qd 160 40P and Supply equation Qs 90 60P Find the equilibrium quantity 1 2 50 2 60 3 4 Answer 60 To find the equilibrium quantity set QD equal to QS achieving the equation 160 40P 90 60P These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Solving for P you find P 2 50 which is the equilibrium price Plug that P into either Q equation to solve for the equilibrium quantity QS 90 60P 90 60 2 50 Qs 90 150 60 Lecture The economics of Valentine s Day What is the price of a dozen roses Normally it s probably 30 or 40 During Valentine s Day however prices shoot to near 70 or 80 because people are willing to pay more This is elasticity of the market at its finest Elasticity measures exactly how responsive the market is to changes in important factors For example Elasticity would measure the response to higher demand for roses during Valentine s Day Another example Assuming you drive a car regularly how do you respond when the price of gas goes up You might search for lower prices instead of buying where it s convenient You may consider selling your current vehicle and buying a more fuel efficient car This is you adjusting to a change in a factor of the market price Here s another concept Surge Pricing When demand goes up

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