ECON 221 1st Edition Lecture 9 Outline of Last Lecture I. Price Elasticity and Total Revenuea. War on Drugs: Interdictionb. War on Drugs: EducationII. Price Elasticity of Supplya. Perfectly Inelasticb. Inelasticc. Unit Elasticd. Elastice. Perfectly ElasticOutline of Current LectureI. Determinants of the Price elasticity of supplya. How the price elasticity of supply can varyII. Consumer and Producer Surplusa. Derive the demand scheduleb. WTP and the demand curvec. Consumer Surplusd. CostCurrent LectureChapter 5.2 (cont.)Determinants of the Price elasticity of Supply:- The more easily sellers can vary the quantity they produce, the greater the price elasticity of supply • Ex. Supply of beachfront property is less elastic than the supply of new cars - Global supply vs. Local supply - Time horizon: price elasticity of supply may be greater in the long run as firms can build new factories or due to entry of new firmsThese 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.Chapter 4 Extension: Consumer and Producer SurplusConsumer and Producer Surplus:- A buyer’s willingness to pay for a good is the maximum amount the buyer will pay for that good.- WTP measures how much the buyer values the good.name WTPAnthony $250 Chad 175Flea 300John 125Example: 4 buyers’ WTP for an iPod- Consumer surplus is the amount a buyer is willing to pay minus the amount the buyer actually pays:- Cost is the value of everything a seller must give up to produce a good (i.e., opportunity cost). o Example: Costs of 3 sellers in the lawn-cutting
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