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Presentation transcript:

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

…..

Who the burden of an excise tax?

Point to the where DWL would appear if an excise tax is applied to this good.