Economics 1: Principles of microeconomicsWednesday, April 18, 2012Lecture 6Review:Demand Market Equilibrium Price SupplyA Equilibrium Price B- Consumer surplus -A,B,P*- producer surplus -C,B,P*- NGS -A,B,C CPreview:-Equilibrium- The net gain to society is smaller at any price other than P*-Price serves as an incentive and signal-Elasticity- price elasticity of demando income elasticityo cross elasticityo supply elasticityW/ Equilibrium price, the NGS is Area A, B, CAt P^, the consumer surplus area is A, P^, Z and the producer surplus area is C, W, Z, P^A SupplyB ($5.00) P* Area Z, B, W is a dead weight lossDemandC Q/tP*P^ZWTransfer areaConsumer unhappy by that amountSupplier happier by that amountEconomics 1: Principles of microeconomicsWednesday, April 18, 2012Lecture 6A Supply P* BDemandQ^SQ* Q/t Q*-Q^S are # of units that are not sold$ S.New D.D.Q* Q^ Q/t$SD New DQ/t Batteries Q* Q*DSends signals to producers to sell more batteries in this area that is affected by no electricityZWP^P*P^NGS -area A, Z, W, CConsumer surplus- A, Z, W, P^Producer surplus- P^, C, WDead weight loss - Z, B, WTransfer areaConsumer happier by that amountSupplier unhappy by that amountAt any given Price, consumers want more (ex. Ipads)Competition between consumersIncrease of $, Decrease in QDReally want to sacrifice that much?Now new equilibrium price$10.00$4.00Electricity goes out, need more batteriesNo incentive to conserve if first to get batteries and use them for low quality usesThis many batteries wanted @ $4.00, so now it is first come, first serveOnly batteries I need for uses worth more than $10.00Economics 1: Principles of microeconomicsWednesday, April 18, 2012Lecture 6Allegation: speculators drive prices up$ SNew D.DLow Priced Period Q/tS New S. $4.00D High Price Period Q/tLess volatility in the market w/ speculators than w/o speculators.Elasticity:Demand in degree of responsiveness$3.75$3.00$2.50Price does not reach its peak w/ speculators-Now additional gas is available Speculators: buy low making prices high now but selling later to make prices lowerEconomics 1: Principles of microeconomicsWednesday, April 18, 2012Lecture 6Natural Measure:∆ QD∆ POriginal P = $1.00Discount P = $1.00New P = $0.00TV P = $1,400TV Discount = $1.00New P = $1399.00Accepted MeasureElasticity of Demand = Ed = % ∆QD% ∆ P −¿¿+ ¿¿¿¿ or + ¿¿−¿¿¿¿ Raise $, QD decreases; Lower $, QD increases75---->100 +33.3% Smaller base100--->75 -25% Larger baseUse the midpoint formula!Q2D−Q1DQ2D+Q1DP2− P1P2+ P1Ed = Q 2D−Q 1DQ2D+Q 1D2P2−P1P2+ P12 =RadiosQ1 = 500,000Q2 = 750,000Economics 1: Principles of microeconomicsWednesday, April 18, 2012Lecture 6P1 = 105.00P2 = 95.00Ed = 750,000− 500,0001,250,00095−105200 = -4.0 Ed = (-) 4.0 Ed = %∆ QD when there is a 1% increase in PriceThe answer will always be negative, so we disregard the negative when we write the answer.So, Ed =