Demand and Supply Analysis Flashcards
Elastic demand:
Inelastic demand:
if a good has elastic demand, small changes in price will:
1.demand Up, Price down
2.demand up, price unchange
Generates larger impact in demand
Income elasticit
Price elasticity
Cross Price elasticity (Relation about two goods)
Price Elast = %△Q
——————-
%△Inc.
ABS |Value | > 1 = Elastic demand
ABS |value |< 1. = Inelastic Demand
Straight line ,
MÁX total revenue = Price elasticity -1
%△Q Income Elast. = ⎯⎯⎯⎯⎯ %△Price
Income elast > 0 → normal good
Income Elast < 0 → Inferior good
3
Cross Price Elast. = % △Q
⎯⎯⎯⎯ %△Price related good
CPE > 0 → Substitute good CPE < 0 → Complement
If demands is inelastic, what does it means? (Price and demand will…)
Price and demand goes in different ways
When a good represent a small portion of the budget of families, it presents
Elasticity will be greater at higher or lowest prices with a negative slope?
- less elasticity - Netflix, Amazon, Disney…
Greater at higher prices
CPE analysis about CPE > 0 and CPE < 0
CPE > 0 = substitute.
⬆️ in💲 for one, ⬇️ in Q for other
CPE < 0 = complements
⬆️ in 💲for one, ⬆️ in Q for other
In a Linear demand curve, demand is elastic at what point ?
What means to have a Price Elasticity of -2 (Linear demand curve) ?
elastic at prices ABOVE the point of unitary elasticity point
Price ⬆️ will ⬇️ Total revenue
- Means 1% ⬇️ in price
Will 2%. ⬆️ in demand
(total revenue is going up!)
When prices raised and supply doesn’t changed, what is the elasticity? And supply?
Price Raises
Supply is perfect inelastic, therefore
Elasticity = 0
Greater look for price elasticity. (Rearranging the formula when demand equation is given)
How can we describe the △Q
———
△P
Without calculation?
Rearranging a formula:
Po. △Q
⎯⎯ x ⎯⎯
Qo. △P
Po and Qo we can get for the demand equation
Qo vai ser o resultado da eq. de Q
△Q
⎯⎯ = Slope of the curve
△P
What says the law of demising return states?
(Lei dos retornos descrescentes)
What about Diminishing marginal return?
- More and more of resource is devoted to a production,
With quantities of others inputs constant
**more output will be produced, **
but in a decreasing rating
2.** Diminishing Marginal returns**
Production Rises, Marginal costs increases in increasing rates
Utility theory
Utility theory says that :
- substitution effect:
(Always 👍) - income Effect
- Law of demand:
- Giffen good, inferior good and Venblen good
- Always positive
⬆️ Price ⬆️ Consumption
- Income Effect: (👍, 👎)
⬇️ Price ⬆️Consumption (Apple)
(NORMAL (👍) good)
⬇️ Price ⬇️ Consumption (Android)
(INFERIOR (👎) good)
- ⬇️ Price ⬆️ Demanda
(If the demand is perfect elastic rsrsrsrsrsrs) - Giffen = Substitution effect = 0
Inferior = Android
Venblen = Ferrari, Rolex (More expenive, more Desireable)
PERFECT COMPETITION
3 items to be considered
What should a company do when
Price > AVC in short run?
- demand is perfect ELASTIC
- Firms are so small relative to market
3.Decisions of output doesnt affect Price
- If Price > AVC, continue to operate in Short run.
to minimize losses
'’Draw the P x Q chart in your mind
Put the AVC, below ATC
MC with the J really sloped curve.’’
AVC = Avarage variable cost
ATC = Avarage total cost
MC = Marginal Cost
ECONOMY OF SCALE
- EOS occurs when:
(Atc/unit) - What happens to the long run AC (Avarage Cost)
- What happens with deseconomies? What a company should do?
- ATC / unit decreseases
it means my Cost is getting lower and Im producing more units.
⬆️ % in Outputs > ⬆️ % in Costs p/unit
- Slopes downward
- ⬆️ units, ⬆️ ATC , should decreases in plant size (Long run).
Price And Costs
P < AVC
ATC > P > AVC
P > ATC
What should we do in long run and short run?
P < AVC - Shut this shit down
ATC > P > AVC
1.P > AVC - Still running in Short run
2. ATC > P - Shut down in Long Run
P > ATC - Alice no pais das maravilhas
