Elasticity Equations Review

KNOW ELASTICITY EQUATIONS Unit 2: Demand, Supply, and Consumer Choice Demand The Law of Denand: Qd P QdA P个 Why is demand downwas! sloping? 1. Subediton 2. Income Effect Supply The Law of Supply: P Qs P Qs Why is supply upward sloping? Haher priors mens mac Profiadfirms have is wemle produce 2. Lowet Diminichy Marginallti liny Changes in Quantity (Moving Along the Curve) What changes quantity supplied? P Changes in Demand and Supply (Shifting the Curve) What changes quantity demanded? Price What changes demand? (5 Shifters of Demand) Tastes/ Pictokiices #erf Consumer S Price of Related Goals Income ⑤ Furture Expeclaims Substitutes: Price of A↑ Demand for B Price of A↓ Demand for BA What changes supply? (6 Shifters of Supply) fot sellers Gou't Action Tours/Subsidirs Expectations of Future Proft 60.C of alternative Normal Goods: Income↑ Demand Income Demand Complements: Price of Af Demand for BV Inferior Goods: Income↑ Demand↓ Price of A Demand for B Equilibrium and Disequilibrium Income Demand A Shortage Surplus PRICE PRICE S S D QUANTITY QUANTITY Equilibrium-QdQs Shortage QdQs Surplus- QdQs Government Controls Price FLOORS go equilibrium and result in a suspis Price CEILINGS go blow equilibrium and result in a shorta Consumer Surplus (CS), Producer Surplus (PS), and Efficiency Before tax ABCD/ 1. CS before tax: ABC PRICE $14 2. PS before tax: EF6H/9300 After Tax 3. Tax per unit: $ 4. CS after tax: B4100 5. PS after tax: 6/200 B $12 A $10 6. Dead weight loss: DE/200 H F CD E 7. Total tax revenue to gov: ACFH 8. Total spending by buyers: DO 9. Total revenue to sellers: 800 G 54 1 10. Amount of tax buyer pay: AC 11. Amount of tax sellers pay: HO Supply after tax Supply before tax Demand QUANTITY 100 200 Elasticity of Demand Double Shifts in Demand and Supply If demand increase AND supply increases, what happens to P SS Inelastic Demand (ex: gas) Characteristics: 1. Few subal L a D 2. Neceserlies 3. Now than lates P Elastic Demand (ex: soda) Characteristics: Rule: If two cycure shift at tine Either cantily willbe the some pricejor quantity Indeterminerte 1. Many Sube Elasticity of Demand Coefficients Perfectly Inelastic Relatively Inelastic Unit Elastic 2. Luxuties 3. Plenty of time Total Revenue Test Inelastic Demand When price 1, TR When price 1. TR Elastic Demand Relatively Elastic When price !, TR When price, TR Perfectly Elastic Consumer Choice and Maximizing Utility You can choose any combination of two different activities, the movies ($10) or riding go carts ($5). #Times Going Marginal Utility (Movies) MU/P 610 Marginal Utility (Go Carts) MU If you only have $25, what combination maximizes your utility? 1st 30 3) 10 2nd 20 43 3rd 10 What combo is best if you have $407 3/2 4th 5 5 2 1