Help with Understanding Elasticity Video

Comprehend Elasticity

Elasiticity of Demand, PED and Essential Formulas

Elasticity of Demand- is a measure of how consumers react to a ∆ in price

1.Elastic Demand- demand that is very sensitive to a change in price

• Product is NOT a necessity
• There are available substitute
• Examples of Elastic
  -soda
  -Candy

2. Inelastic Demand- Demand that is not sensitive to change in price

• Product is a necessity
•  Few or no substitutes
• People will buy no matter what
• Examples of Inelastic
  -Gas
  - Salt

3. Unitary Demand E=1

 

Price Elasticity of Demand (PED)

1) Quantity

(New quantity – Old quantity)/Old quantity

2) Price

(New price – Old Price)/Old Price

3) PED

Percentage ∆ in Quantity demanded/Percentage ∆ in Price

Total Revenue: the total amount of money a firm receives from selling goods & services P×Q= TR (price × quantity=total revenue)

Fixed Cost: a cost that does not change no matter how much is produced Ex. Rent, mortgage, insurance, salary

Variable Cost:  a cost that rises and falls depending upon how much is produced Ex. Electricity

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

 

Formulas

• TC=TFC+TVC
• ATC=AFC+AVC
• AFC=ATC/Q
• AVC=TVC/Q
• ATC=TC/Q
• TFC=AFCxQ
• TVC=AVCxQ

PPC/PPG

Production Possibilities Graph AKA: PPG- shows alternative ways to use an economy’s resources. (PPC-Curve)
4 Assumptions:

• Two Goods
• Fixed Resources (land, labor, capital & entrepreneurship)
• Fixed Technology
• Full Employment of Resources

Efficiency- using resources in such a way as to maximize the production of goods & services

Allocative Efficiency- products being produced are the ones most desired by society

Productive Efficiency- products are being produced in the least costly way & this means any point on (PPC)

Underutilization- using fewer resources than an economy is capable of using

• C -inside the curve-you are unattainable but inefficient: underutilization
• B & D-on the curve-You are attainable and efficient: it is producing
• E -outside of the curve-Unattainable

What causes the PPC/PPG to shift?

• Technological Changes
• Economic Growth
• Change in Resources
• Change in Labor Force
• Natural Disasters, War, Famine
•  More education & training

∆ (delta) -change

 

 Production Possibilities Graph (PPG)- shows alternative ways to use an economy’s resources. (PPC-Curve)
4 Assumptions:
-Two Goods
-Fixed Resources (land, labor, capital & entrepreneurship)
-Fixed Technology
-Full Employment of Resources

Efficiency- using resources in such a way as to maximize the production of goods & services

Allocative Efficiency- products being produced are the ones most desired by society

Productive Efficiency- products are being produced in the least costly way & this means any point on (PPC)

Underutilization- using fewer resources than an economy is capable of using



 C -inside the curve
You are unattainable but inefficient: underutilizationB & D-on the curve
You are attainable and efficient: it is producing
E -outside of the curve
Unattainable



What causes the PPC/PPG to shift?

Technological Changes
Economic Growth
Change in Resources
Change in Labor Force
Natural Disasters, War, Famine
 More education & training
∆ (delta) -change

Shifting the PPC Video

Shifting the PPC

Intro To Economics

• Ma

Macroeconomics: the study of the economy as a whole

• supply and demand
• international trade
• minimum wage

Microeconomics: the study of individual or specific units of the economy.
Where people make decisions and how their decisions interact.

• supply and demand
• market structure

Positive Economics: attempts to describe the world as is.

• descriptive
• collects and presents facts

Normative Economics:It attempts to prescribe how the world should be.

• Very prescriptive
• Thrives on what ‘ought’ to be done and what ‘should’ be done
• Opinion-based

Needs: Basic requirements for survival

• food
• clothing
• shelter
• water

Wants: Desires of citizens


Goods: A tangible commodity that can be bought, sold, or produced.

• capital goods: items used on the creation of other goods
• consumer goods: goods that are intended for final use of the customers

Services:Work that is performed for someone


Scarcity:The most fundamental economic problem facing all societies.
How to satisfy unlimited wants with limited resources. Always necessitates a choice.

Shortage:Quantity divided is greater than quantity supplied