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Samenvatting - economics, welfare and distribution (ESSB-BC1090)
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Economics, welfare and distributionSummary for resit
Week 1 individual optimal welfare
Problem 1: prices affecting
Pbl 1 + 2 and lecture 1
demand
Total revenue = price x quantity demanded Demand curve
The demand curve describes potential
prices of which a firm pricks one. A
Price elasticity of demand change in price moves
The percentage changed in quantity you along the demand curve, it does not
demanded for the percentage change in shift the curve.
price that caused it > how sensitive is Optimal decision: the demand curve
the quantity demanded to a change in represents alternative outcomes with
price. only one optimal decision (the best
outcome)
Inelastic demand curve
A price change does not change the
quantity demanded much > not that
price sensitive
- Prince increase > revenue
When a value is > 1 it is elastic (flat)
increase
When a value is < 1 it
- Price decrease > revenue
is inelastic (steep)
decrease
When a value is equal to 1 it is unit-
elastic
Perfectly inelastic demand curve
A price change does not change the
quantity demanded at all. Ex. Medicine
Time period concept: you cannot
make a price elasticity calculation over
different time periods, only in one
snapshot of time.
3 characteristics:
- It is a % change
- Average of the vale that comes
before and after
- They are absolute values (no –
signs)
,Elastic demand curve
Price change does change the quantity
demanded
- Price increases > revenue
decreases
- Price decreases > revenue X= % change
increases in quantity
demanded
Perfectly elastic demand curve
For any change in price, buyers change
to 0. They will then buy it at another
Unit elastic demand curve
place > substitution effect
% in price change leads to the same %
change in quantity demanded. It never
reaches 0.
- Revenue stays the same with
price change
- Elasticity is 1 among the whole
curve
Straight line demand curve
The middle ground between the
perfectly (in)elastic curves. The slope
can change, the curve does not. Along a
straight-line demand curve, the price
elasticity of demand grows steadily
smaller as you move from left to right.
Determents of demand
- Has a different elasticity at each elasticity
point of the curve - Nature of the good > luxury
(elastic) vs necessities (inelastic)
> direction of income effect: if
you expect to have more money
in the future you are more likely
to buy a luxury good
> postponement of
consumption: some goods are
, not necessary and their Demand: the amount of a good/service
consumption can be postponed, consumers are willing and able to
others are (ex. Life saving drugs) purchase at each price point. This is
(then inelastic demand). based on:
- Availability of substitutes: - Needs and wants
whether consumers can easily - Number of consumers
- Income
access similar goods at a cheaper
- The price and availability of
price.
related goods
> brand loyalty: fans - Expectations of the future price
>
habit Quantity demanded: the total amount
of units that are purchased at a certain
price.
the law of supply
if the price rises , the quantity supplied
rises. So the supply curve always slopes
up. This is based on:
- Price of resources
consumption: ex. cigarettes - Technology
- Share of consumers budget: items - Taxes and subsidies
that absorb little of a consumers - Prices of other goods
budget tend to have a rather - The number of sellers
inelastic demand curve
- Passage of time: demand for
products is more elastic on long
term then on short term. Times
allows you to adjust to market
changes, which explains the
increase in elasticity.
Cross elasticity of demand
Consumers demand for a product is
X= % change in quantity supplied Elasticity of supply
% change in price To measure a response of the quantity
supplied against the percentage change
effected by the quantity and price of in price.
other products. > it measures how much
the demand for product X is affected by
price changes in product Y. Elasticity of income
complement goods: if the price of Quantity demanded can depend on the
product x increases, the demand for consumers income, an increased income
product y will also increase will lead to and increased demand of
substitute goods: if the price of
product x increases, the demand for X= % change in quantity demanded
product y will decrease % change in income
the law of demand
A higher price leads to a lower quantity goods.
demanded, so demand curves slope <0 inferior goods
down. 0-1Necessities
>1 luxury goods
Nature of good
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