Beruflich Dokumente
Kultur Dokumente
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Problem sets:
=> Treated in tutorials (see folders Course Content on
Blackboard)
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Effort requirements
1. MyLabsPlus
=> Log in (see folders Course Information on Blackboard)
student number
student number
=> Code (comes with the book, can be bought via MLP)
=> Multiple choice questions
Blackboard
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Consumers
Workers
Households
Firms
Politicians
etc.
time
money
production factors,
etc.
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13
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positive analysis
Analysis describing relationships of cause and effect.
normative analysis
Analysis examining questions of what ought to be.
3.
4.
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QD = QD(P)
or
P = P(QD)
(inverse demand function)
Q2
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Aggregate demand
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4
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8
12
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Note:
Aggregate demand is always less steep than individual demand
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QS = QS(P)
or
P = P(QS)
(inverse supply function)
Q2
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Conditions:
1) Free entry/exit
2) Homogeneity
3) No market power
4) Transparency
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3. Elasticities
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(2.1)
In other words:
the elasticity measures the sensitivity to a price change
Hereafter:
1) Price elasticity of demand (most slides)
2) Price elasticity of supply (one slide)
3) Income elasticity (one slide)
4) Cross-price elasticity (one slide)
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P0
P1
D
D
Q0 Q1
Q is very small
= relatively inelastic demand
Q0
Q1
Q is very big
= relatively elastic demand
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10
P0
P1
Task 2: calculate
the elasticities
at (P0, Q0) for both
functions.
(Q1-Q0)/Q0
(P1-P0)/P0
D
D
Q0 Q1
20 22
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Q0
Q1
20
30
Q
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10
P0
P1
(Q1-Q0)/Q0
(P1-P0)/P0
D
D
Q0 Q1
20 22
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Q0
Q1
20
30
Q
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Q
P
= first derivative
(slope) of (demand)
function
E = -2 * 2/4 = -1
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E=
-2 * 1/6 = -1/3
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(TR = P*Q)
1
6
TR
6
4
3.5
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policy implications!
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Two extremes:
Infinitely Elastic
Completely Inelastic
(the slope is 0)
(i.e. demand does not react to P at all)
Perfectly elastic demand: good has a large number of very close (that is, perfect) substitutes41
in-consumption readily available. Examples??
Perfectly inelastic demand: good has absolutely no substitutes-in-consumption.
EP =
(Q1-Q0)/Q0
(P1-P0)/P0
Suppose P1 = 10
P3 = 12
Q1 = 10
Q3 = 14
Calculate EP
EP = +40%/+20% = 2
if EP > 1 elastic supply; if 0 < EP < 1 inelastic supply
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number of consumers
income
preferences
price substitution goods
price complementary goods
Cross-price elasticity:
the degree in which a % price
change in a substitution good or
complementary good leads to a
change in the quantity demanded
of another good
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Income elasticity:
the degree in which
a % income change leads
to a % change in the
quantity demanded
Price ceiling
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Price floor
Pmin
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Excess supply ?
Only in combination
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with price support!
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