Microeconomics Elasticity Cheat Sheet

Own price elasticity of demand a measure of the responsiveness of consumers to a change in the price of a good or service Income elasticity of demand. AP epsilon <0 as long as the law of demand holds 1E11 elastic 1801 = 1 unit elastic 181<1 inelastic Percent change from x_{c} to 100% a measure of consumers' responsiveness to changes in income T * E deg < 0 inferior good I * E deg = 0 no relationship I mathcal E ^ triangleright >0 normal good Cross Price elasticity of Demand (Good A+ Good B) a measure of consumers' responsiveness for Good A when the price of B changes * The more horizontal a demand curve is, the more elastic it is * If a profit-maximi zing firm is currently pricing in an inelashc region of demand, a they should increase price If a profit-maximizing firm is Currently pricing in an elastic reich of deen sprould chec whether they change price 66 when supply is mors elastic when supply is more inelastic when demant is max alan when demand is most canc Floor T binding cung Ceiling X * \mathcal{E} ^ D > 0 substitutes x * epsilon deg = 0 unrelated Prefloor/S Pusfloor S X * epsilon deg < 0 complements 120 floor * |x * epsilon ^ b| increases, the relationship blw the 2 goods *Revenue is maximized at a price where demand is unit elastic a FIELICIEPT Montt Determinants of Elancity of Demand More Elactic, if.. need more available increases Price Floor a government mandated minimum price Price Ceiling a government mandated maximum price Tax Burcten the amount by which a tax causes prices to increase (decrease) for consumers (producers) Less necessary * More inelastic side is more affected by taxes/subsidies availability of close substitutes substitutes market definition more narrow 500 100 subility D Pre Subsidy Post Subsidy CS A + B + F + E PS time horizon longer larger Externalities: an action causes a positive/negative effect on a third party Social Costs private Costs+ external costs Social Benefits=private benefits+ external benefits Cost F + G + B + C (B + C + D + E + F) "percentage of consumar's budget percentage TS A + B + FG Own Price elasticity of Negative Externality supply a measure of the to changes in prices responsiveness of producers E epsilon_{s} > 0if law of supply holds Coase Theorem: The Socially efficient outcome to an ex-ternality will be reach honed privately if trans-action costs are low, regardless of the G De Pocitive Externality elastic unit elastic Inelastic Socal ripe benefi O Q Determinants of Elasticity of Supply Hone Elastic if... * Transaction costs can be prohibitively high in some cases so the initial assignment of property rights is important for efficiency time horizon longer time zons (wlin goods) "Shorter production the lacross goods) producion time A + B + F + G - D I * E ^ D = 7. Delta Q^ D 7. Delta I XE^ D = \% Delta * Q ^ D * (6oo * dA) k Delta P(6ood B) A + B D = DWL F + G x_{2} / vec epsilon_{1} < i Elasticity (general) epsilon- 9 ou Delta Q 9 ou Delta P = (Delta*Q)/Q/((Delta*P)/(Delta*P)) - ((Delta*Q)/Q)(P/(Delta*P)) - (Delta*QP)/(Delta*PQ) ΔΟ AQ Q %ΔΡ ΔΡ P E C Q-Q Q+Q 2 Q-Q QQQQ₁) × (P+P₁) x (P-P)x(Q P-P P+P P.-P P+P 2 revenue = PQ = price times quantity Q = quantity supplied, output, product, total product L = labor, variable input VC = variable cost = wage x L = price of variable input x variable input FC = fixed cost TC = total cost = VC + FC MP = marginal product = AQ/AL (A means "change in") MC = marginal cost = AVC/AQ= wage/MP (A means "change in") AP = average product = O /L AVC average variable cost =VC/Q = wage/AP AFC = average fixed cost = FC/O ATC = average total cost = TC/Q= AVC + AFC Marginal Revenue = Arevenue/AO (A means "change in") Profit = revenue total st=O^ * *( PAT C^ * ), where indicates value at optimum marginal revenue product = marginal Revenue x marginal product PV = FV / ((1 + 1) ^ n) where PV = present value, vdash V = 1 value of one future payment, 1= interest rate, n = number of years until future payment Asset value (of stream of annual future payments) = FV l i= payment each year) l_{1}