My sublime shelf by Jason Xu

jxu1888 — 2019-01-30 19:16:36 UTC

Elasticity: measurement of the sensitivity of change in one thing related to another

5 Determinants of Price Elasticity of Demand
Substitutes
Time
Income
Luxury v. Necessity

Price Elasticity of Demand: (in picture, always ignore negative sign when using this formula)

PE>1 elastic
=1 unit elastic
<1 Inelastic

Total Revenue: (in picture below)

Midpoint method: used to calculate more accurately, disregarding taking the final-initial, or initial-final (in picture below)

Elastic vs. Inelastic Demand related to Revenue:
If demand is elastic:
when P increases, total revenue decreases
when P decreases, total revenue increases
If demand is inelastic:
when P increases, total revenue increases
when P decreases, total revenue decreases

Causes of this ^^^^ stuff are the:
price effect - when P increases, each unit sold has a higher price so more revenue is made
quantity effect - when P increases, fewer units will be sold so less revenue is made

Demand Curve elasticity: Along the demand curve, it is inelastic at lower prices and elastic at higher prices (in picture below)

jxu1888 — 2019-01-30 19:24:50 UTC

jxu1888 — 2019-01-30 19:27:45 UTC

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jxu1888 — 2019-01-30 19:47:27 UTC

Cross price elasticity of demand: measures the effect of the change in price of one good and the change in quantity of another (in picture below) always take sign into account:
If positive, the goods are substitutes
If negative, the goods are complements

Income elasticity of demand: (in picture below) always take sign into account:
If positive, it is a normal good
If negative, it is an inferior good

Price elasticity of supply: (in picture below), don' take sign into account,
factors are:
Availability of inputs and time

Graphs of perfectly elastic and inelastic are the same as demand, and the rules for PEs are the same as well except it is supply

jxu1888 — 2019-01-30 19:53:42 UTC

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jxu1888 — 2019-01-30 20:03:02 UTC

Consumer surplus: difference between amount consumers are willing to pay and will actually pay
willing to pay - price paid

Producer surplus: difference between amount producers are willing to supply and what they actually receive
price received - cost(the lowest selling price)

Consumer and Producer Surplus on a graph: (in picture below)

price falls, consumer surplus increases

price rises, producer surplus increases

jxu1888 — 2019-01-30 20:10:08 UTC

Taxes:
progressive: tax rises more than in proportion to income
proportional: same tax rate regardless of income
regressive: low earners pay higher taxes proportional to their income than high earners

excise tax: tax on a good or service
-creates a wedge
supply curve shifts left

excise tax is the vertical difference in value of supply between the shift
tax decrease both producer and consumer surplus

jxu1888 — 2019-01-30 20:18:56 UTC

marginal utility: change in total utility by consuming another unit of the same good or service

principle of diminishing marginal utility: each additional unit consumed of the same good or service adds less to total utility than the previously consumed good

optimal consumption bundle: maximizes a consumer's total utility within the budget

***Optimal consumption is when marginal utility per dollar spent is equal between all goods, essentially when it is in equilibrium.

Marginal utility per dollar spent: (in picture below)