Macroeconomics Lesson 2. Topics 1. Homework 2. Review Supply and Demand 3. Floors and Ceilings 4....
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Transcript of Macroeconomics Lesson 2. Topics 1. Homework 2. Review Supply and Demand 3. Floors and Ceilings 4....
![Page 1: Macroeconomics Lesson 2. Topics 1. Homework 2. Review Supply and Demand 3. Floors and Ceilings 4. Elasticity.](https://reader036.fdocuments.net/reader036/viewer/2022083005/56649f275503460f94c3f122/html5/thumbnails/1.jpg)
Macroeconomics
Lesson 2
![Page 2: Macroeconomics Lesson 2. Topics 1. Homework 2. Review Supply and Demand 3. Floors and Ceilings 4. Elasticity.](https://reader036.fdocuments.net/reader036/viewer/2022083005/56649f275503460f94c3f122/html5/thumbnails/2.jpg)
Topics
1. Homework
2. Review Supply and Demand
3. Floors and Ceilings
4. Elasticity
![Page 3: Macroeconomics Lesson 2. Topics 1. Homework 2. Review Supply and Demand 3. Floors and Ceilings 4. Elasticity.](https://reader036.fdocuments.net/reader036/viewer/2022083005/56649f275503460f94c3f122/html5/thumbnails/3.jpg)
Correct the Homework
Answers:1. P = $7.50 Q = 3502. P = 55¢ Q = 5703. P = $375 Q = 854. P= $1375 Q= 17
![Page 4: Macroeconomics Lesson 2. Topics 1. Homework 2. Review Supply and Demand 3. Floors and Ceilings 4. Elasticity.](https://reader036.fdocuments.net/reader036/viewer/2022083005/56649f275503460f94c3f122/html5/thumbnails/4.jpg)
Another S & D example
Price Q d Price Q s
60 0 60 500
50 100 50 400
40 200 40 300
30 300 30 200
20 400 20 100
10 500 10 0
![Page 5: Macroeconomics Lesson 2. Topics 1. Homework 2. Review Supply and Demand 3. Floors and Ceilings 4. Elasticity.](https://reader036.fdocuments.net/reader036/viewer/2022083005/56649f275503460f94c3f122/html5/thumbnails/5.jpg)
Answer:
Price = $35, Quantity = 250
What happens to price and quantity if the price of a substitute good increases?
What happens to price and quantity if the cost of production decreases?
![Page 6: Macroeconomics Lesson 2. Topics 1. Homework 2. Review Supply and Demand 3. Floors and Ceilings 4. Elasticity.](https://reader036.fdocuments.net/reader036/viewer/2022083005/56649f275503460f94c3f122/html5/thumbnails/6.jpg)
Floors and Ceilings
See the examples on the board.
![Page 7: Macroeconomics Lesson 2. Topics 1. Homework 2. Review Supply and Demand 3. Floors and Ceilings 4. Elasticity.](https://reader036.fdocuments.net/reader036/viewer/2022083005/56649f275503460f94c3f122/html5/thumbnails/7.jpg)
Price Elasticity of Demand
Measures the sensitivity or (responsiveness) of quantity consumers demand to changes in the price of a product
![Page 8: Macroeconomics Lesson 2. Topics 1. Homework 2. Review Supply and Demand 3. Floors and Ceilings 4. Elasticity.](https://reader036.fdocuments.net/reader036/viewer/2022083005/56649f275503460f94c3f122/html5/thumbnails/8.jpg)
Equation for Coefficient of Elasticity of Demand
% change in quantity ÷ % change in price
The equation for determining the coefficient elasticity of demand is:
[(Q1-Q2)÷(Q1+Q2)]÷[(P1-P2)÷(P1+P2)]
![Page 9: Macroeconomics Lesson 2. Topics 1. Homework 2. Review Supply and Demand 3. Floors and Ceilings 4. Elasticity.](https://reader036.fdocuments.net/reader036/viewer/2022083005/56649f275503460f94c3f122/html5/thumbnails/9.jpg)
Examples
1. Q1 = 250 Q2 = 300 P1=50 P2=40
Answer = 0.81 ( <1, inelastic)
2. Q1 = 250 Q2 = 500 P1 = $6 P2=$5
Answer = 3.66 (>1, elastic)
3. Q1 = 250 Q2 = 300 P1 = $6 P2=$5
Answer = 1 (unit elastic)
![Page 10: Macroeconomics Lesson 2. Topics 1. Homework 2. Review Supply and Demand 3. Floors and Ceilings 4. Elasticity.](https://reader036.fdocuments.net/reader036/viewer/2022083005/56649f275503460f94c3f122/html5/thumbnails/10.jpg)
More examples
4. Q1 = 500 Q2 = 500 P1 = $6 P2=$5
Answer = 0 (perfectly inelastic)
5. Q1 = 500 Q2 = 600 P1 = $5 P2=$5
Answer = undefined (perfectly elastic)
![Page 11: Macroeconomics Lesson 2. Topics 1. Homework 2. Review Supply and Demand 3. Floors and Ceilings 4. Elasticity.](https://reader036.fdocuments.net/reader036/viewer/2022083005/56649f275503460f94c3f122/html5/thumbnails/11.jpg)
Sesame Street School of Ed
A key to identifying elastic or inelastic demand is the shape of the Demand Curve:
The more the curve looks like a capital I, the more inelastic the demand, and the fewer the substitutes
The more the curve looks like a capital E, the more elastic the demand, and there must be many substitutes
![Page 12: Macroeconomics Lesson 2. Topics 1. Homework 2. Review Supply and Demand 3. Floors and Ceilings 4. Elasticity.](https://reader036.fdocuments.net/reader036/viewer/2022083005/56649f275503460f94c3f122/html5/thumbnails/12.jpg)
Uses of Elasticity of Demand
We can use Elasticity of Demand to determine the price where we Maximize Total Revenue
Remember the equation for Total Revenue TR = Price x Quantity
![Page 13: Macroeconomics Lesson 2. Topics 1. Homework 2. Review Supply and Demand 3. Floors and Ceilings 4. Elasticity.](https://reader036.fdocuments.net/reader036/viewer/2022083005/56649f275503460f94c3f122/html5/thumbnails/13.jpg)
Other uses for Ed
Tax incidence: who pays the tax?
Predict the change in quantity from a change in price
Evaluate the effectiveness of social policies
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Circular Flow