# ECON 211 FINAL

 Wealth of the Nations Adam Smth 1776 Positive Economic Statement I make 8 dollars an hour Normative economic statement The minimum wage should be \$8 an hour Law of demand indirect negative inverse relationship between price and Qd Determinants of Demand Price of other GoodsTastes/ PreferencesIncome/WealthQualityExpectation of price changeNumber of buyers Price elasticity sensitivity of Qd to P Point Method Equation (Q2-Q1)/Q1 (P2-P1)/P1 Ed is related to what? Inverse of D-curve Linear D-Curve Constant slope elasticity not constant. High p low Qs-- Elastic Low p High Qd-- inelastic Midpoint Method Percent change in Qd= Change in Qd/.5(Q1+Q2) Why use Midpoint? pt. method normalizes through bu initial pointMidpt. is less biased equal-- weigh equally-> P1and P2 and Q1Q2Reversing method doesnt change Ed Determinants of Elasticity Availabillity of SubtitutesHabit formationIncome-- Small portion(gum) v large portionTime (longer or sorter time horizon)Necessity v LuxuryDef. of Mkt. Broad v narrow Toyota v Red Toyota Prius Income elasticity of Demand %change in Qd/ %change in Y(income) Inferiors are negatively elastic Cross price elasticity %change of Q of good 1/ % change in price of good 2 In the example above, the two goods, fuel and cars(consists of fuel consumption), are complements; that is, one is used with the other. In these cases the cross elasticity of demand will be negative, as shown by the decrease in demand for cars when the price of fuel increased. In the case of perfect complements, the cross elasticity of demand is negative infinity.Where the two goods are substitutes the cross elasticity of demand will be positive, so that as the price of one goes up the demand of the other will increase. For example, in response to an increase in the price of carbonated soft drinks, the demand for non-carbonated soft drinks will rise. In the case of perfect substitutes, the cross elasticity of demand is equal to infinity. Law od Supply Direct relationship between P and Qs Determinants of Supply Price of inputsPrice of SubstitutesTechnologyExpecationsGovernment policiesNumber of Sellers Problem with Price Ceiling Shortages lead to non-market sanctioned ways to distribute goodsblack market discrimination other fees 1st come 1st serve Problems with Pf What to do with the surplus 2 types of profit Economic- TR-explicit-implicitAccounting-TR-Explicit Production Function Mathematical r graphical relationship between inputs and outputs Cobb Douglas Production Function Relationship between Q and inputs (K,L) Law of Diminishing Marginal Product If equal amounts of an input (labor) is added and the quanitity of other iputs resulting increase in output will decrease at some point profit =? TR-TC or Q(P-ATC) SR shudown if? TR