Principles of Microeconomics Midterm 2 "Cheat Sheet"
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Transcript of Principles of Microeconomics Midterm 2 "Cheat Sheet"
Own price elasticity of demand :If Demand increases
. . . S
a measure of the responsivenessIncome elasticity of demand :
Of consumers to a change in a Measure Of Consumers'
§S p
.
P,
the price of a good or service responsiveness TO Changes in Dz Dz
E D= !j?aQp"
income. a
D'
a. a.
D'
IE D= %4Q 's
t.IQ > tap tap ) t.IQE
, ,( Oas long as the law of '1. II when supply is more elastic When supply is more
inelastic
demand holds IED ( 0 inferior goodIf Supply decreases
. . .
IE , ,71 elastic
E, , =1 unit elastic
IED=O no relationshipp
.
sz s.
E,
( I inelastic IED 7 0 normal good p,
i
s,
pps
,
Percent change from x. toxz : Cross Price elasticity of Demand D D
×2 - × '• 100.1 .
( Good At Good B) '
. a measure Of QQ ' on a
X, t.AM/.LlQ t.IQ > tapconsumers
' responsiveness forwhen demand is more inelastic when demand is more elastic* The more horizontal a demand Good A when the price of B
Curve is,
themoreelasticitis s sp Changes.
* Ifa profit - Maxim 't ,IT
E¥"f
.EE#ggq2in9firmiscurrehHyxqD=yaQD(
Good A)
"
%¥¥t¥tEp±§ ( son
floor
= 1111 " pricing in an inelastic 311 11 11 11 Ceiling=
=.
' 1.41 > ( GOODB ) bindingps shore
. = region of demand, ceiling 3000 p D
. =ii. iii. ii. a they should KED )0 substitutes 489070¥ 38,0,§6%0
increase priceK If a profit - maximizing firm is KED=0 Unrelated prefloor s
postfloorscurrently pricing in an elastic
KEDCOComplements
b¥o%Moo|cs 120451, 11111 floor
region of demand,
it is Unclear 1111 ,new
'=DWL
whether they should change KASIKEDI increases,
the - aa-
nonbinding Ps = Ps -
price relationship blwthezgoods floor = is . is
* Revenue is maximized ata P soo 300 s,
price where demand is increasesunit elastic Price Floor :a government mandated a sz
HIE ,> 1<1 EPT HIE ,,I > I { PT minimum price g-
CsS B
§ D) subsidyRevenue Costs ( QHRevenueCoststprice ceiling :a government
Ernie DWL,
F WedgeProfitytproatpyofittProfitytprof.tl?Ygfittmandated maximum price
3- ¥"
'
"
'
"
'
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¥"
IB,PIsefTI×°
Determinants of More Tax Burden : the amount by which stooyjo Q D
Elasticity of Demand Elastic if...
a tax causes prices to increase• need • less necessary ( decrease ) for consumers ( producers ) Presubsidy Post Subsidy
• availability of • more available * More inelastic side is more CS A + B A + B+F+Eclose substitutes substitutes affected by taxes subsidies PS F + G Ft G + Btc
• market definition • more narrow• time horizon • longer Externalities : an action
COST - ( B+C+D+EtF )•
percentage of •
larger TS At B+F+G At B+F+G - Dconsumer 's budget percentage
Causesa positive Negative
* D= DWLeffect On a third party Negative ExternalityOwn Price Elasticity Of e§§giadhY+ social cost = private # + external cost
supply :a measure of the Social Costs -- private quantity
&Wm}efFfiFe
••Sprivate cost
responsiveness Of producers outcome I••• competitive outcomecosts + external Costs ==TO Changes in prices = = D= private benefit - social benefit
Social Benefits - private Asean{ s=%}¥¥ benefits + external benefits
Positive
E×+emE¥.li?adYnys=priva+ecos+=sociaicos+quantity
DWL fromEs ) Oiflawof supply holds Cease Theorem : The÷
women've
{ s) I elastic competitive outcome ; = social Benefit = private benefit + external
Es =/ unit elastic Socially Efficient =
,=,
Dprivate benefitbenefitEsc
1 inelastic Outcome to an ex -
Qpcose
Determinants of MoreElasticity# supply Elastic if...
lethality Will be teach - K Transaction costs can be
• time horizon • iongertimehori .Ed Privately if trans - prohibitively high in some cases
zonslwlingoods ) action costs are low,
so the initial assignment of property•production • shorter Production regardless Of the rights is important for efficiencytime time ( across goods ) .
• perishability • less perishableInitial Property rights K The initial assignment of property
• capital • lower capital Total Surplus : Consumer surplus 't rights affects payments blw partiesrequirements requirements Producer Surplus + 1- externality