Transcript I guess that the circumference of the earth is about:

I guess that the circumference of
the earth is about:
5,000 miles
10,000 miles
15,000 miles
25, 000 miles
30,000 miles
35,000 miles
45,000 miles
55,000 miles
65,000 miles
24%
15%
14%
13%
12%
11%
4%
2%
4%
2%
5,
00
0
m
10
ile
,0
s
00
m
15
ile
,0
s
00
m
25
ile
,0
s
00
m
30
ile
,0
s
00
m
35
ile
,0
s
00
m
45
ile
,0
s
00
m
55
ile
,0
s
00
m
65
ile
,0
s
00
m
75
ile
,0
s
00
m
ile
s
1.
2.
3.
4.
5.
6.
7.
8.
9.
The circumference of the earth is
about:
5,000 miles
10,000 miles
15,000 miles
25, 000 miles
30,000 miles
35,000 miles
45,000 miles
55,000 miles
65,000 miles
16%
9%
3%
1%
3%
4%
3%
2%
0%
5,
00
0
m
10
ile
,0
s
00
m
15
ile
,0
s
00
m
25
ile
,0
s
00
m
30
ile
,0
s
00
m
35
ile
,0
s
00
m
45
ile
,0
s
00
m
55
ile
,0
s
00
m
65
ile
,0
s
00
m
75
ile
,0
s
00
m
ile
s
1.
2.
3.
4.
5.
6.
7.
8.
9.
59%
What is it really?
• 24,901 miles
Firms in an industry have $500 fixed costs,
variable costs of $20 per unit, and capacity of
50 units. In the long run there is free entry and
exit. What is the long run equilibrium price?
79%
1.
2.
3.
4.
$20
$50
$30
$25
13%
3%
5%
A competitive firm has fixed costs of $10,000,
capacity of 1000 and variable costs of $5 per
unit. In the short run if the price of the good
falls from $15 to $7.50, the firm will
Produce zero
Produce 1000 units
Produce 500 units.
Produce 250 units.
73%
11%
3%
.
13%
.
1.
2.
3.
4.
A competitive firm has fixed costs of $10,000,
capacity of 1000 and variable costs of $5 per
unit. In the short run if the price of the good
falls from $15 to $4, the firm will
83%
13%
3%
1%
.
Produce zero
Produce 1000 units
Produce 500 units.
Produce 250 units.
.
1.
2.
3.
4.
And on to our lecture…
If the demand curve is a downwardsloping straight line, then the
elasticity of demand is the same
everywhere along the line.
1. True
2. False
71%
29%
Why is that?
• The elasticity of demand is NOT the slope of
the demand curve. It is the ratio of percentage
change in quantity to percentage change in
price.
• Read p 411 of textbook to see how to calculate
elasticity along a straight line demand curve.
The price elasticity of demand for rental housing
is –1, and the price elasticity of supply is +1/4.
Municipal authorities set a rent ceiling 20% below
the equilibrium price. The number of units
rented
52%
18%
15%
10%
4%
.
Increases by 20%.
Decreases by 20%.
Decreases by 5%.
Increases by 25%.
Decreases by 10%.
.
1.
2.
3.
4.
5.
Why is that?
• The price quantity combination moves
along the supply curve. (Landlords are not
compelled to rent.)
• Since supply elasticity is ¼ , a 20% fall in
price leads to a 5% fall in quantity supplied.
The supply curve is horizontal at $10.
The demand curve has formula P=100Q. A sales tax of $10 per unit is imposed.
What is the excess burden of this tax?
49%
1.
2.
3.
4.
5.
$20
$30
$40
$50
$60
23%
16%
10%
Here is the picture
Price
100
Slope of demand curve is –1.
Excess burden is Triangle A
Area of A is 10x10/2=50
P=100-Q
$20
A
$10
Quantity
Happy Trails…