Sides Game
Increase in the Price of Corn Effect on demand for corn? No change in demand *decrease in the QUANTITY demanded
Point to the Producer Surplus
If steak has an income elasticity of -0.6 It is a inferior good.
If Y has a cross price elasticity of -.8 with X Y and X are? complements
Point to the Consumer Surplus
Decrease in P and Q What single shift has occurred? Decrease demand
Races = $50 Musicals = $100 Budget = $300
MU always decreases with additional units of consumption *except maybe in the beginning
One reason the demand curve slopes downward is that as one product gets more expensive, similar products become relatively cheaper. This is called the substitute effect Other reasons demand is downward sloping: income effect, diminishing marginal utility, and law of demand
Point to the Equilibrium Price
A price increase of a product will cause a decrease in the quantity demanded for that product
Binding price floors cause? surpluses
Which causes misallocation of resources? 2 answers Binding Price Floors Binding Price Ceilings Non-Binding Price Floors Non-Binding Price Ceilings
PED value of 1 indicates UNIT Elasticity
PED is the % change in Qd ___________________ % change in P
If price increased and quantity decreased, what most likely occurred? Decrease supply
A horizontal demand or supply curve is_____ ______ Perfectly elastic
The PED of a horizontal demand curve is Looking for the theoretical value of PED
The PED of a vertical demand or supply curve is Zero or perfectly inelastic
Inelastic demand A price increase will increase TR
Point to a point on the Y-axis where a non-bonding price floor could be installed.
To determine if a good is normal or inferior Price elasticity of demand Income elasticity Cross price elasticity
Quantity MU (in dollars) 1 14 2 11 3 7 4 3 5 -1
Total Utility of 2 units Quantity MU (in dollars) 1 14 2 11 3 7 4 3 5 -1 14 + 11= 25
Optimal Purchase Q if Price = $6 Quantity MU (in dollars) 1 14 2 11 3 7 4 3 5 -1 Should buy 3 units
Optimal Purchase Q if Price = $6 Quantity MU (in dollars) 1 14 2 11 3 7 4 3 5 -1 *Optimal Purchase rule: P= MU
Unit Elastic (PED) A price decrease will not change TR
Optimal Purchase Rule P = MU
Use TR rule to determine elasticity zone between A and B P decreases and TR increases
Point to the market clearing price Price
Consumer Equilibrium requires equalizing MU/$ within income limits
To determine if a good is a compliment or substitute Price elasticity of demand Income elasticity Cross price elasticity
Increase in corn farmer subsidies P and Q of corn? P decreases and Q increases *because supply will shift right
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Who the burden of an excise tax?
Point to the where DWL would appear if an excise tax is applied to this good.