Elasticity/ production costs unit 1

January 14, 2016

Elasticity of Demand

: a measure of how consumers react to a change in price

• Elastic Demand : demand that is very sensitive to change in price 
• E>1
• product is not a necessity and are available substitutes

• Inelastic Demand : demand that is not very sensitive to a change in price
• E<1
• product is a neccessity
• few to no substitutes
• people will buy no matter what

• Unitary Demand: 
• E=1

Elastic vs. Inelastic

• Elastic
• soda
• steaks
• candy
• fur coats

• Inelastic
• gas
• salt
• medicine/ insulin
• milk

Price Elasticity of Demand (PED)

     Step 1 : Quantity

•         New Quantity - old quantity 
•         Old quantity

    Step 2 : Price

• New price - old price
•       old price

               

    Step 3 : PED

• % change in quantity demanded
• % change in price

Costs of Production

Total Revenue: total amount of money a firm receives from selling goods and services

• TR = Price * Quantity

Fixed Cost:  a cost that does not change no matter how much of a good is produced

(rent, mortgage, insurance, salaries)

Variable Cost: a cost that rises or falls depending upon how much is produced

Marginal Cost:  the cost of producing one more unit of a good

Formulas 

• TFC + TVC = TC
• AFC + AVC = ATC
• TFC / Q = AFC
• TVC / Q = ATC
• AFC * Q = TFC
• AVC * Q = TVC
• New TC - Old TC = Marginal Cost

January 21, 2016

•Peak:
-The highest point of real GDP
-Lowest unemployment and the greatest spending

•Expansion (recovery phase):
-Real gdp is increasing, which causes
spending to increase and unemployment decreases

•Contraction/(recession):
-Real gdp declines for six months
-An increase unemployment and a reduction in spending

•Trough:
-Lowest point of real GDP
-highest unemployment and the least amount of spending