670 lines
150 KiB
HTML
670 lines
150 KiB
HTML
<html><head><meta http-equiv="Content-Type" content="text/html; charset=utf-8"/><title>Unit 2: Supply and Demand</title><style>
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/* cspell:disable-file */
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/* webkit printing magic: print all background colors */
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html {
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-webkit-print-color-adjust: exact;
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}
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* {
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box-sizing: border-box;
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-webkit-print-color-adjust: exact;
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}
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html,
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body {
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margin: 0;
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padding: 0;
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}
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@media only screen {
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body {
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margin: 2em auto;
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max-width: 900px;
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color: rgb(55, 53, 47);
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}
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}
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body {
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line-height: 1.5;
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white-space: pre-wrap;
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}
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a,
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a.visited {
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color: inherit;
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text-decoration: underline;
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}
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.pdf-relative-link-path {
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font-size: 80%;
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color: #444;
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}
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h1,
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h2,
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h3 {
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letter-spacing: -0.01em;
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line-height: 1.2;
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font-weight: 600;
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margin-bottom: 0;
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}
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.page-title {
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font-size: 2.5rem;
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font-weight: 700;
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margin-top: 0;
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margin-bottom: 0.75em;
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}
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h1 {
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font-size: 1.875rem;
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margin-top: 1.875rem;
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}
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h2 {
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font-size: 1.5rem;
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margin-top: 1.5rem;
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}
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h3 {
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font-size: 1.25rem;
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margin-top: 1.25rem;
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}
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.source {
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border: 1px solid #ddd;
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border-radius: 3px;
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padding: 1.5em;
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word-break: break-all;
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}
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.callout {
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border-radius: 3px;
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padding: 1rem;
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}
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figure {
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margin: 1.25em 0;
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page-break-inside: avoid;
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}
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figcaption {
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opacity: 0.5;
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font-size: 85%;
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margin-top: 0.5em;
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}
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mark {
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background-color: transparent;
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}
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.indented {
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padding-left: 1.5em;
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}
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hr {
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background: transparent;
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display: block;
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width: 100%;
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height: 1px;
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visibility: visible;
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border: none;
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border-bottom: 1px solid rgba(55, 53, 47, 0.09);
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}
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img {
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max-width: 100%;
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}
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@media only print {
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img {
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max-height: 100vh;
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object-fit: contain;
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}
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}
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@page {
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margin: 1in;
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}
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.collection-content {
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font-size: 0.875rem;
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}
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.column-list {
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display: flex;
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justify-content: space-between;
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}
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.column {
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padding: 0 1em;
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}
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.column:first-child {
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padding-left: 0;
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}
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.column:last-child {
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padding-right: 0;
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}
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.table_of_contents-item {
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display: block;
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font-size: 0.875rem;
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line-height: 1.3;
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padding: 0.125rem;
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}
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.table_of_contents-indent-1 {
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margin-left: 1.5rem;
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}
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.table_of_contents-indent-2 {
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margin-left: 3rem;
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}
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.table_of_contents-indent-3 {
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margin-left: 4.5rem;
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}
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.table_of_contents-link {
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text-decoration: none;
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opacity: 0.7;
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border-bottom: 1px solid rgba(55, 53, 47, 0.18);
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}
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table,
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th,
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td {
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border: 1px solid rgba(55, 53, 47, 0.09);
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border-collapse: collapse;
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}
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table {
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border-left: none;
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border-right: none;
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}
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th,
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td {
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font-weight: normal;
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padding: 0.25em 0.5em;
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line-height: 1.5;
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min-height: 1.5em;
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text-align: left;
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}
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th {
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color: rgba(55, 53, 47, 0.6);
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}
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ol,
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ul {
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margin: 0;
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margin-block-start: 0.6em;
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margin-block-end: 0.6em;
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}
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li > ol:first-child,
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li > ul:first-child {
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margin-block-start: 0.6em;
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}
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ul > li {
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list-style: disc;
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}
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ul.to-do-list {
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text-indent: -1.7em;
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}
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ul.to-do-list > li {
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list-style: none;
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}
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.to-do-children-checked {
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text-decoration: line-through;
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opacity: 0.375;
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}
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ul.toggle > li {
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list-style: none;
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}
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ul {
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padding-inline-start: 1.7em;
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}
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ul > li {
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padding-left: 0.1em;
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}
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ol {
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padding-inline-start: 1.6em;
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}
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ol > li {
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padding-left: 0.2em;
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}
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.mono ol {
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padding-inline-start: 2em;
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}
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.mono ol > li {
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text-indent: -0.4em;
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}
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.toggle {
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padding-inline-start: 0em;
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list-style-type: none;
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}
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/* Indent toggle children */
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.toggle > li > details {
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padding-left: 1.7em;
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}
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.toggle > li > details > summary {
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margin-left: -1.1em;
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}
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.selected-value {
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display: inline-block;
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padding: 0 0.5em;
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background: rgba(206, 205, 202, 0.5);
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border-radius: 3px;
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margin-right: 0.5em;
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margin-top: 0.3em;
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margin-bottom: 0.3em;
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white-space: nowrap;
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}
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.collection-title {
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display: inline-block;
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margin-right: 1em;
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}
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.simple-table {
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margin-top: 1em;
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font-size: 0.875rem;
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empty-cells: show;
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}
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.simple-table td {
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height: 29px;
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min-width: 120px;
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}
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.simple-table th {
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height: 29px;
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min-width: 120px;
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}
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.simple-table-header-color {
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background: rgb(247, 246, 243);
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color: black;
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}
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.simple-table-header {
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font-weight: 500;
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}
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time {
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opacity: 0.5;
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}
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.icon {
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display: inline-block;
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max-width: 1.2em;
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max-height: 1.2em;
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text-decoration: none;
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vertical-align: text-bottom;
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margin-right: 0.5em;
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}
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img.icon {
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border-radius: 3px;
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}
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.user-icon {
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width: 1.5em;
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height: 1.5em;
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border-radius: 100%;
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margin-right: 0.5rem;
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}
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.user-icon-inner {
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font-size: 0.8em;
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}
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.text-icon {
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border: 1px solid #000;
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text-align: center;
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}
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.page-cover-image {
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display: block;
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object-fit: cover;
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width: 100%;
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max-height: 30vh;
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}
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.page-header-icon {
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font-size: 3rem;
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margin-bottom: 1rem;
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}
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.page-header-icon-with-cover {
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margin-top: -0.72em;
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margin-left: 0.07em;
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}
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.page-header-icon img {
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border-radius: 3px;
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}
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.link-to-page {
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margin: 1em 0;
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padding: 0;
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border: none;
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font-weight: 500;
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}
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p > .user {
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opacity: 0.5;
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}
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td > .user,
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td > time {
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white-space: nowrap;
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}
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input[type="checkbox"] {
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transform: scale(1.5);
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margin-right: 0.6em;
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vertical-align: middle;
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}
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p {
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margin-top: 0.5em;
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margin-bottom: 0.5em;
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}
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.image {
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border: none;
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margin: 1.5em 0;
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padding: 0;
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border-radius: 0;
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text-align: center;
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}
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.code,
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code {
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background: rgba(135, 131, 120, 0.15);
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border-radius: 3px;
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padding: 0.2em 0.4em;
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border-radius: 3px;
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font-size: 85%;
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tab-size: 2;
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}
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code {
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color: #eb5757;
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}
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.code {
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padding: 1.5em 1em;
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}
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.code-wrap {
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white-space: pre-wrap;
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word-break: break-all;
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}
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.code > code {
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background: none;
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padding: 0;
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font-size: 100%;
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color: inherit;
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}
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blockquote {
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font-size: 1.25em;
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margin: 1em 0;
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padding-left: 1em;
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border-left: 3px solid rgb(55, 53, 47);
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}
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.bookmark {
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text-decoration: none;
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max-height: 8em;
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padding: 0;
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display: flex;
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width: 100%;
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align-items: stretch;
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}
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.bookmark-title {
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font-size: 0.85em;
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overflow: hidden;
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text-overflow: ellipsis;
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height: 1.75em;
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white-space: nowrap;
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}
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.bookmark-text {
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display: flex;
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flex-direction: column;
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}
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.bookmark-info {
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flex: 4 1 180px;
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padding: 12px 14px 14px;
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display: flex;
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flex-direction: column;
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justify-content: space-between;
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}
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.bookmark-image {
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width: 33%;
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flex: 1 1 180px;
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display: block;
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position: relative;
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object-fit: cover;
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border-radius: 1px;
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}
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.bookmark-description {
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color: rgba(55, 53, 47, 0.6);
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font-size: 0.75em;
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overflow: hidden;
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max-height: 4.5em;
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word-break: break-word;
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}
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.bookmark-href {
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font-size: 0.75em;
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margin-top: 0.25em;
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}
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.sans { font-family: ui-sans-serif, -apple-system, BlinkMacSystemFont, "Segoe UI", Helvetica, "Apple Color Emoji", Arial, sans-serif, "Segoe UI Emoji", "Segoe UI Symbol"; }
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.code { font-family: "SFMono-Regular", Menlo, Consolas, "PT Mono", "Liberation Mono", Courier, monospace; }
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.serif { font-family: Lyon-Text, Georgia, ui-serif, serif; }
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.mono { font-family: iawriter-mono, Nitti, Menlo, Courier, monospace; }
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.pdf .sans { font-family: Inter, ui-sans-serif, -apple-system, BlinkMacSystemFont, "Segoe UI", Helvetica, "Apple Color Emoji", Arial, sans-serif, "Segoe UI Emoji", "Segoe UI Symbol", 'Twemoji', 'Noto Color Emoji', 'Noto Sans CJK JP'; }
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.pdf:lang(zh-CN) .sans { font-family: Inter, ui-sans-serif, -apple-system, BlinkMacSystemFont, "Segoe UI", Helvetica, "Apple Color Emoji", Arial, sans-serif, "Segoe UI Emoji", "Segoe UI Symbol", 'Twemoji', 'Noto Color Emoji', 'Noto Sans CJK SC'; }
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.pdf:lang(zh-TW) .sans { font-family: Inter, ui-sans-serif, -apple-system, BlinkMacSystemFont, "Segoe UI", Helvetica, "Apple Color Emoji", Arial, sans-serif, "Segoe UI Emoji", "Segoe UI Symbol", 'Twemoji', 'Noto Color Emoji', 'Noto Sans CJK TC'; }
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.pdf:lang(ko-KR) .sans { font-family: Inter, ui-sans-serif, -apple-system, BlinkMacSystemFont, "Segoe UI", Helvetica, "Apple Color Emoji", Arial, sans-serif, "Segoe UI Emoji", "Segoe UI Symbol", 'Twemoji', 'Noto Color Emoji', 'Noto Sans CJK KR'; }
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.pdf .code { font-family: Source Code Pro, "SFMono-Regular", Menlo, Consolas, "PT Mono", "Liberation Mono", Courier, monospace, 'Twemoji', 'Noto Color Emoji', 'Noto Sans Mono CJK JP'; }
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.pdf:lang(zh-CN) .code { font-family: Source Code Pro, "SFMono-Regular", Menlo, Consolas, "PT Mono", "Liberation Mono", Courier, monospace, 'Twemoji', 'Noto Color Emoji', 'Noto Sans Mono CJK SC'; }
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.pdf:lang(zh-TW) .code { font-family: Source Code Pro, "SFMono-Regular", Menlo, Consolas, "PT Mono", "Liberation Mono", Courier, monospace, 'Twemoji', 'Noto Color Emoji', 'Noto Sans Mono CJK TC'; }
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.pdf:lang(ko-KR) .code { font-family: Source Code Pro, "SFMono-Regular", Menlo, Consolas, "PT Mono", "Liberation Mono", Courier, monospace, 'Twemoji', 'Noto Color Emoji', 'Noto Sans Mono CJK KR'; }
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.pdf .serif { font-family: PT Serif, Lyon-Text, Georgia, ui-serif, serif, 'Twemoji', 'Noto Color Emoji', 'Noto Serif CJK JP'; }
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||
.pdf:lang(zh-CN) .serif { font-family: PT Serif, Lyon-Text, Georgia, ui-serif, serif, 'Twemoji', 'Noto Color Emoji', 'Noto Serif CJK SC'; }
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||
.pdf:lang(zh-TW) .serif { font-family: PT Serif, Lyon-Text, Georgia, ui-serif, serif, 'Twemoji', 'Noto Color Emoji', 'Noto Serif CJK TC'; }
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||
.pdf:lang(ko-KR) .serif { font-family: PT Serif, Lyon-Text, Georgia, ui-serif, serif, 'Twemoji', 'Noto Color Emoji', 'Noto Serif CJK KR'; }
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||
.pdf .mono { font-family: PT Mono, iawriter-mono, Nitti, Menlo, Courier, monospace, 'Twemoji', 'Noto Color Emoji', 'Noto Sans Mono CJK JP'; }
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.pdf:lang(zh-CN) .mono { font-family: PT Mono, iawriter-mono, Nitti, Menlo, Courier, monospace, 'Twemoji', 'Noto Color Emoji', 'Noto Sans Mono CJK SC'; }
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.pdf:lang(zh-TW) .mono { font-family: PT Mono, iawriter-mono, Nitti, Menlo, Courier, monospace, 'Twemoji', 'Noto Color Emoji', 'Noto Sans Mono CJK TC'; }
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.pdf:lang(ko-KR) .mono { font-family: PT Mono, iawriter-mono, Nitti, Menlo, Courier, monospace, 'Twemoji', 'Noto Color Emoji', 'Noto Sans Mono CJK KR'; }
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.highlight-default {
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color: rgba(55, 53, 47, 1);
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}
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.highlight-gray {
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color: rgba(120, 119, 116, 1);
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fill: rgba(120, 119, 116, 1);
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}
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.highlight-brown {
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color: rgba(159, 107, 83, 1);
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fill: rgba(159, 107, 83, 1);
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}
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.highlight-orange {
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color: rgba(217, 115, 13, 1);
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fill: rgba(217, 115, 13, 1);
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}
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.highlight-yellow {
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color: rgba(203, 145, 47, 1);
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fill: rgba(203, 145, 47, 1);
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}
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.highlight-teal {
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color: rgba(68, 131, 97, 1);
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fill: rgba(68, 131, 97, 1);
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}
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.highlight-blue {
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color: rgba(51, 126, 169, 1);
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fill: rgba(51, 126, 169, 1);
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}
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.highlight-purple {
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color: rgba(144, 101, 176, 1);
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fill: rgba(144, 101, 176, 1);
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}
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.highlight-pink {
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color: rgba(193, 76, 138, 1);
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fill: rgba(193, 76, 138, 1);
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}
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.highlight-red {
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color: rgba(212, 76, 71, 1);
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fill: rgba(212, 76, 71, 1);
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}
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.highlight-gray_background {
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||
background: rgba(241, 241, 239, 1);
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||
}
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.highlight-brown_background {
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background: rgba(244, 238, 238, 1);
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||
}
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.highlight-orange_background {
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background: rgba(251, 236, 221, 1);
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}
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.highlight-yellow_background {
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background: rgba(251, 243, 219, 1);
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||
}
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.highlight-teal_background {
|
||
background: rgba(237, 243, 236, 1);
|
||
}
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||
.highlight-blue_background {
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||
background: rgba(231, 243, 248, 1);
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</style></head><body><article id="49cf04a9-5dd7-439c-b48e-237f885334e1" class="page sans"><header><h1 class="page-title">Unit 2: Supply and Demand</h1><table class="properties"><tbody><tr class="property-row property-row-created_time"><th><span class="icon property-icon"><svg viewBox="0 0 14 14" style="width:14px;height:14px;display:block;fill:rgba(55, 53, 47, 0.45);flex-shrink:0;-webkit-backface-visibility:hidden" class="typesCreatedAt"><path d="M7.01356 14.0001C8.8042 14.0001 10.5958 13.3107 11.9575 11.9324C14.681 9.21201 14.6808 4.7603 11.9571 2.04013C9.23336 -0.680043 4.77573 -0.680043 2.05199 2.04013C0.727519 3.36277 0 5.13301 0 6.99553C0 8.8764 0.727811 10.6285 2.05199 11.9509C3.43207 13.3106 5.22243 14.0001 7.01356 14.0001ZM3.72947 7.00914V8.461V8.65543H3.92382H5.34563H8.2794H8.4738V8.461V5.52541V3.37947V3.18502H8.2794H6.82747H6.63307V3.37947V6.81467H3.92382H3.72947V7.00914ZM1.83985 6.99553C1.83985 5.61698 2.38099 4.32597 3.36061 3.3477C5.36746 1.34337 8.64803 1.34062 10.6585 3.33944C10.6613 3.34219 10.6639 3.34494 10.6668 3.3477C12.676 5.3546 12.6763 8.63642 10.6668 10.6434C8.65705 12.6504 5.37031 12.6504 3.36061 10.6434C2.38099 9.66506 1.83985 8.37408 1.83985 6.99553Z"></path></svg></span>Created</th><td><time>@September 20, 2021 9:46 AM</time></td></tr><tr class="property-row property-row-multi_select"><th><span class="icon property-icon"><svg viewBox="0 0 14 14" style="width:14px;height:14px;display:block;fill:rgba(55, 53, 47, 0.45);flex-shrink:0;-webkit-backface-visibility:hidden" class="typesMultipleSelect"><path d="M4,3 C4,2.447715 4.447715,2 5,2 L12,2 C12.5523,2 13,2.447716 13,3 C13,3.55228 12.5523,4 12,4 L5,4 C4.447715,4 4,3.55228 4,3 Z M4,7 C4,6.447715 4.447715,6 5,6 L12,6 C12.5523,6 13,6.447716 13,7 C13,7.55228 12.5523,8 12,8 L5,8 C4.447715,8 4,7.55228 4,7 Z M4,11 C4,10.447715 4.447715,10 5,10 L12,10 C12.5523,10 13,10.447716 13,11 C13,11.55228 12.5523,12 12,12 L5,12 C4.447715,12 4,11.55228 4,11 Z M2,4 C1.44771525,4 1,3.55228475 1,3 C1,2.44771525 1.44771525,2 2,2 C2.55228475,2 3,2.44771525 3,3 C3,3.55228475 2.55228475,4 2,4 Z M2,8 C1.44771525,8 1,7.55228475 1,7 C1,6.44771525 1.44771525,6 2,6 C2.55228475,6 3,6.44771525 3,7 C3,7.55228475 2.55228475,8 2,8 Z M2,12 C1.44771525,12 1,11.5522847 1,11 C1,10.4477153 1.44771525,10 2,10 C2.55228475,10 3,10.4477153 3,11 C3,11.5522847 2.55228475,12 2,12 Z"></path></svg></span>Tags</th><td><span class="selected-value select-value-color-orange">In Class</span></td></tr></tbody></table></header><div class="page-body"><h1 id="58a338ed-a558-44cb-9682-ada8e1433725" class="">2.1 - Key Terms</h1><h2 id="25628646-da23-460a-afb0-032068acc8fe" class="">Quantity Demanded</h2><p id="661f3f66-e2bf-469a-8689-0bd69f85281e" class="">Quantity demanded is the amount of a good demanded by buyers at a given price level.</p><p id="3332d9f0-ba6c-454e-b75a-35e6498020dd" class="">Buyers who are:</p><ol type="1" id="c09861d6-34aa-4cc9-b90c-d915b8b5b92b" class="numbered-list" start="1"><li>Willing to buy</li></ol><ol type="1" id="17029c26-e88c-4821-a756-0adbf4e54b18" class="numbered-list" start="2"><li>Able to buy</li></ol><p id="089e8b24-7595-44e1-ba04-13f0cc56fec3" class="">Combine to make the <strong><span style="border-bottom:0.05em solid">Effective Demand</span></strong>.</p><p id="add6d83e-f205-49eb-9572-ed5ae85ec408" class="">Quantity demanded is the effective demand at a given price level. Quantity demanded has an inverse relationship with price.</p><figure class="block-color-gray_background callout" style="white-space:pre-wrap;display:flex" id="c6915eea-961e-4ad9-84c4-918fabfca9c2"><div style="font-size:1.5em"><span class="icon">💡</span></div><div style="width:100%"><strong>Price</strong> moves <strong>Quantity Demanded</strong>. Price is the independent variable in this equation, and Quantity Demanded is the dependent one. Consumers are <strong>reactive</strong> to changes in price.</div></figure><h2 id="b320019a-478d-46ec-9c43-c21c82b096f1" class="">Paradox of Demand</h2><p id="064c893e-2f55-431e-be94-0018b7209396" class="">Under the paradox of demand, some goods do not have an inverse relationship between price and quantity demanded, but a parallel relationship. Goods are bought at higher prices in order to impress others, for things like luxury goods, therefore demand increases as price increases. </p><p id="b4f25980-86f0-4d83-aef1-53dc3e691307" class="">There are two causes for the paradox of demand, either conspicious consumption (buying goods to impress others), or Giffin goods (inferior goods which have no close substitutes).</p><h2 id="202c1eaa-a47c-40d0-95a8-f3d0108bdd9e" class="">Demand Schedule</h2><p id="87e601a6-f44a-49f5-b8ae-0a6bf7dc265d" class="">A table showing how much of a good or service consumers will want to buy at different prices.</p><h2 id="47c076a4-7e2b-41d2-9127-bbb08a383710" class="">Graphing Price vs. Quantity Demanded</h2><p id="13f71775-f309-4982-a638-51b86ceaa5bd" class="">Price goes on the y-axis, quantity demanded goes on the x-axis. </p><p id="12601df5-348b-4257-b1a8-21f6681a813e" class="">This is known as a demand curve. </p><p id="03ba130b-3283-41d6-b002-b740175fa3a8" class="">When there is an <strong>increase in demand</strong>, the demand curve shifts right (outward), with <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><msub><mi>D</mi><mn>0</mn></msub></mrow><annotation encoding="application/x-tex">D_0</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.83333em;vertical-align:-0.15em;"></span><span class="mord"><span class="mord mathnormal" style="margin-right:0.02778em;">D</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:0.30110799999999993em;"><span style="top:-2.5500000000000003em;margin-left:-0.02778em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">0</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.15em;"><span></span></span></span></span></span></span></span></span></span></span><span></span></span> being the original curve and <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><msub><mi>D</mi><mn>1</mn></msub></mrow><annotation encoding="application/x-tex">D_1</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.83333em;vertical-align:-0.15em;"></span><span class="mord"><span class="mord mathnormal" style="margin-right:0.02778em;">D</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:0.30110799999999993em;"><span style="top:-2.5500000000000003em;margin-left:-0.02778em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">1</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.15em;"><span></span></span></span></span></span></span></span></span></span></span><span></span></span> being the new curve. The opposite is also true, when there is a <strong>decrease in demand</strong>, the demand curve shifts left (inward).</p><p id="8dc23010-61f1-4169-aa76-a267e06a09ab" class="">Therefore, when <strong>total demand</strong> increases, the <strong>quantity demanded</strong> will increase at ALL POSSIBLE price levels. This means that something other than price has caused consumer demand to increase. The same is, of course, possible for a decrease in demand. </p><div id="e330ac07-47b4-425c-bf58-947ee87daba0" class="column-list"><div id="4006e7a7-c4e7-4976-90e8-944c2d6b892b" style="width:100%" class="column"><figure id="42ea38f6-a674-45a1-9f38-39eec6702de2" class="image"><a href="Unit%202%20Supply%20and%20Demand%2049cf04a95dd7439cb48e237f885334e1/Untitled.png"><img style="width:600px" src="Unit%202%20Supply%20and%20Demand%2049cf04a95dd7439cb48e237f885334e1/Untitled.png"/></a></figure></div><div id="3ef68c35-42ae-4d6f-9a6e-6f8c49f4d367" style="width:100%" class="column"><figure id="5c7644d7-251c-454f-bc1b-9622d32297ee" class="image"><a href="Unit%202%20Supply%20and%20Demand%2049cf04a95dd7439cb48e237f885334e1/Untitled%201.png"><img style="width:384px" src="Unit%202%20Supply%20and%20Demand%2049cf04a95dd7439cb48e237f885334e1/Untitled%201.png"/></a></figure></div></div><h2 id="b5511c65-9622-4cb5-9a85-c2a777067c77" class="">Causes of Change in Demand</h2><p id="275818d4-d86e-4656-a1d8-092f1024ed84" class="">Something other than price changes:</p><ul id="b1eaa5d1-4d92-4159-9042-8c8c1155d6b0" class="bulleted-list"><li style="list-style-type:disc"><strong>I:</strong> Income - Consumer Income Changes<ul id="9043c4b6-a80e-4e91-884c-144cc3479d2b" class="bulleted-list"><li style="list-style-type:circle">With an increase in Consumer Income: Curve shifts right for Normal Goods (Fettuccini Alfredo) & Left for Inferior Goods (Ramen)</li></ul><ul id="07195537-3f99-403a-ad85-7ae23b650661" class="bulleted-list"><li style="list-style-type:circle">With a decrease in Consumer Income: Curve shifts left for Normal Goods & right for Inferior Goods</li></ul></li></ul><ul id="a63bc134-43a1-42f2-8067-745ce9b36532" class="bulleted-list"><li style="list-style-type:disc"><strong>N:</strong> Number - Change in the Number of Consumers<ul id="fc15a8a8-1508-452b-8e99-7a62aec51606" class="bulleted-list"><li style="list-style-type:circle">Increase in number of buyers: Curve shifts right</li></ul><ul id="0c624792-4f05-45f6-845f-c42d5dc98f31" class="bulleted-list"><li style="list-style-type:circle">Decrease in number of buyers: Curve shifts left</li></ul></li></ul><ul id="586634ac-27b4-4d3e-8cf1-e76cd92bcb9f" class="bulleted-list"><li style="list-style-type:disc"><strong>S:</strong> Substitute - Change in the Price of Substitute Goods<ul id="fe372bd3-ca05-4ff1-862b-e6582d0ca6fe" class="bulleted-list"><li style="list-style-type:circle">Increase in the price of substitutes: Curve shifts right</li></ul><ul id="7d515ce5-49ec-4c0d-81ca-6a2531b11c7f" class="bulleted-list"><li style="list-style-type:circle">Decrease in the price of substitutes: Curve shifts left</li></ul></li></ul><ul id="f8a4800a-af4f-4f43-bb5b-eae4bbdeaabe" class="bulleted-list"><li style="list-style-type:disc"><strong>E:</strong> Expectations - Change in expectations of future price<ul id="c26be6fd-c254-42f1-b283-9c3f1f7d54fd" class="bulleted-list"><li style="list-style-type:circle">Expect a rise in price: Curve shifts right<ul id="57785d03-52f5-41fd-b853-eddfbf7b8d5a" class="bulleted-list"><li style="list-style-type:square">Gonna buy up before price goes up</li></ul></li></ul><ul id="e3392c6a-ce46-4b38-8e7a-a02bc47c6104" class="bulleted-list"><li style="list-style-type:circle">Expect a decrease in price: Curve shifts left<ul id="9b87b54e-8552-409a-b92e-c57340f762ac" class="bulleted-list"><li style="list-style-type:square">Not gonna buy until price decreases</li></ul></li></ul></li></ul><ul id="abcc5541-13c5-452b-83de-325109300ccd" class="bulleted-list"><li style="list-style-type:disc"><strong>C:</strong> Complement - Change in the price of complement goods<ul id="0b5ac46f-045d-478c-9a0f-3ac35b952313" class="bulleted-list"><li style="list-style-type:circle">Two goods that go together will move in opposite directions as the price of the other changes.</li></ul></li></ul><ul id="d8dcb642-96a3-4b6e-806f-9472a8fe2948" class="bulleted-list"><li style="list-style-type:disc"><strong>T:</strong> Taste - Change in consumer taste and preferences<ul id="2427a0d7-42af-4a5a-8425-07f7130a7771" class="bulleted-list"><li style="list-style-type:circle">Increase in Taste or Preference for the item: Curve moves Right</li></ul><ul id="4c97a1e0-5d41-4123-95b2-1bbe0e092821" class="bulleted-list"><li style="list-style-type:circle">Decrease in Taste or Preference for the item: Curve moves Left</li></ul></li></ul><h2 id="39479105-92b5-48c6-8850-656c91df8597" class="">Income Effect</h2><p id="e1f28429-9bdf-4216-bcc0-6006c8c740df" class="">The <strong>income effect</strong> is the change in the consumption of goods by consumers based on their income. When the price of a good falls, consumers experience an increase in purchasing power from a given income level. When the price of a good increases, consumers experience a decrease in purchasing power. </p><p id="a700870c-3d35-4589-909a-42668b82e7f8" class="">Normal goods have a positive income effect, that is, more of the good is consumed as the income of it's consumers increases. Inferior goods have a negative income effect, as consumers' income increases, less of the good is purchased. </p><h2 id="70dc18c8-40a1-4800-8157-a53f6fdafdc2" class="">Substitution Effect</h2><p id="4eef60a5-961d-40d2-9ebf-50e7d86b655a" class="">The <strong>substitution effect</strong> happens when consumers replace cheaper items with more expensive ones when their financial conditions change. When the price of a good falls, consumers will substitute toward that good and away from other goods.</p><h1 id="a092af0f-3b1c-4b03-86bd-3bfa98f7d2de" class="">2.2 - Supply</h1><h2 id="19dbb04f-aec6-49e5-939c-02a2532ab4b7" class="">Law of Supply</h2><ul id="8b52e614-8c64-4ecc-89c2-6d5496531cbf" class="bulleted-list"><li style="list-style-type:disc">The <strong>quantity supplied</strong> of any good is the amount that sellers are willing and able to sell.</li></ul><ul id="15528b3f-f369-4ff0-b549-ca3e9d311de2" class="bulleted-list"><li style="list-style-type:disc">The <strong>Law of Supply</strong> states that the quantity supplied of a good rises when the price of the good rises, other things being equal.</li></ul><h2 id="3bad22f8-7973-499c-8b3e-237ac16338aa" class="">The Supply Schedule</h2><ul id="94c3696f-28fd-408a-a2e4-d692ec1810ff" class="bulleted-list"><li style="list-style-type:disc">A <strong>supply schedule</strong> is a table that shows the relationship between the price of a good and the quantity supplied. These tables have two columns, the price of the good and the quantity supplied.</li></ul><h2 id="0a9cd318-e872-4012-a7fa-022db26a02b8" class="">Market Supply vs. Individual Supply</h2><ul id="1d8a742b-bcc7-4749-a691-1edc5a52717e" class="bulleted-list"><li style="list-style-type:disc">The quantity supplied in the market is the sum of the quantities supplied by all the sellers at each price.</li></ul><ul id="432af2ce-f781-464b-ab78-2f703aa4a791" class="bulleted-list"><li style="list-style-type:disc"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><msup><mi>Q</mi><mi>s</mi></msup></mrow><annotation encoding="application/x-tex">Q^s</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8777699999999999em;vertical-align:-0.19444em;"></span><span class="mord"><span class="mord mathnormal">Q</span><span class="msupsub"><span class="vlist-t"><span class="vlist-r"><span class="vlist" style="height:0.664392em;"><span style="top:-3.063em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight">s</span></span></span></span></span></span></span></span></span></span></span></span><span></span></span> represents the market quantity supplied</li></ul><h2 id="9724d465-80b8-4bdc-95c8-7f766bf34616" class="">Supply Curve Shifters</h2><ul id="d2c8f916-5d62-4cc9-b0c1-e8d825c9021d" class="bulleted-list"><li style="list-style-type:disc">The supply curve shows how price affects quantity supplied, <em>other things being equal</em>.</li></ul><ul id="36fac1c0-581b-4bef-a1c6-5b25c6f93da1" class="bulleted-list"><li style="list-style-type:disc">These other things are the non-price determinants of quantity supplied. \</li></ul><h3 id="6d705d72-31bf-4de0-a83f-560265941544" class="">Input Prices</h3><ul id="a776fd08-1523-4cc6-9260-e4fdd972a8c6" class="bulleted-list"><li style="list-style-type:disc">Examples of input prices: wages, prices of raw materials</li></ul><ul id="785b9384-8df8-4476-84dc-cb1e001848fe" class="bulleted-list"><li style="list-style-type:disc">A fall in input prices makes production more profitable at each output price, so firms supply a larger quantity at each price, and the <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>S</mi></mrow><annotation encoding="application/x-tex">S</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.05764em;">S</span></span></span></span></span><span></span></span> curve shifts to the right.</li></ul><ul id="d25ac802-7571-43be-b8a6-02b946370acd" class="bulleted-list"><li style="list-style-type:disc">An increase in input prices makes production less profitable at each output price, so firms supply a lower quantity at each price, and the <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>S</mi></mrow><annotation encoding="application/x-tex">S</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.05764em;">S</span></span></span></span></span><span></span></span> curve shifts to the left.</li></ul><h3 id="560dae35-4375-41e4-ac12-a6e551e6be05" class="">Technology</h3><ul id="5533cde3-c1a2-4a13-9c1c-bb2e5e07401c" class="bulleted-list"><li style="list-style-type:disc">Technology determines how much inputs are required to produce a unit of output.</li></ul><ul id="aba24452-7b99-46a0-ae7c-e1d8da71d833" class="bulleted-list"><li style="list-style-type:disc">A cost-saving technological improvement has the same effect as a fall in input prices, it shifts the <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>S</mi></mrow><annotation encoding="application/x-tex">S</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.05764em;">S</span></span></span></span></span><span></span></span> curve to the right. </li></ul><h3 id="5a53e0e6-368a-4c90-a335-52a4f80b2597" class="">Number of Sellers</h3><ul id="3d122a97-7596-48e2-8c63-7cd30a8d60e0" class="bulleted-list"><li style="list-style-type:disc">An increase in the number of sellers increases the quantity supplied at each price.</li></ul><ul id="95f1bd1a-0172-4a97-bc59-0e330bdc6d86" class="bulleted-list"><li style="list-style-type:disc">This also shifts the <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>S</mi></mrow><annotation encoding="application/x-tex">S</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.05764em;">S</span></span></span></span></span><span></span></span> curve to the right.</li></ul><h3 id="2a37ecd3-1bb4-41ea-ab68-be41f3b8f3b7" class="">Expectations</h3><ul id="5362f3c6-80dd-43d9-9d9b-d2046d9bae58" class="bulleted-list"><li style="list-style-type:disc">An expectation of a higher price for a good will cause sellers to reduce their quantity supplied and hold on to their inventory until the price increases, temporarily shifting the <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>S</mi></mrow><annotation encoding="application/x-tex">S</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.05764em;">S</span></span></span></span></span><span></span></span> curve to the left.</li></ul><ul id="240e70c4-a8a7-4400-98e7-2d1d348192a3" class="bulleted-list"><li style="list-style-type:disc">This only applies if the goods are not perishable</li></ul><h3 id="4a66b9e9-60b3-486d-919f-6c176c1a9c54" class="">Summary: Variables that Influence Sellers</h3><ul id="b6d57cd9-bcb0-4649-80d0-8c1fa7140bf5" class="bulleted-list"><li style="list-style-type:disc">Change in price causes a movement along the <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>S</mi></mrow><annotation encoding="application/x-tex">S</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.05764em;">S</span></span></span></span></span><span></span></span> curve</li></ul><h2 id="198a47bc-9ab1-4bc8-ac79-c8848bbe4ce3" class="">Fancy Acronym</h2><ul id="97f96aa9-1010-4310-be70-12fc2d948b10" class="bulleted-list"><li style="list-style-type:disc">R - Resource Input/Cost</li></ul><ul id="052c563b-ae21-4b41-a2aa-2eae1e657128" class="bulleted-list"><li style="list-style-type:disc">O - Other goods</li></ul><ul id="fa1ccb9a-b320-4eee-94e5-7af07999d6c5" class="bulleted-list"><li style="list-style-type:disc">T - Technology</li></ul><ul id="b980454a-2e8d-4614-af9a-64c36bd9e0f9" class="bulleted-list"><li style="list-style-type:disc">T - Taxes</li></ul><ul id="8d8ac46a-4385-434f-8b93-a8843de3c151" class="bulleted-list"><li style="list-style-type:disc">E - </li></ul><h1 id="2f46aebd-cbf0-48ab-b770-0c75ba430927" class="">2.3 - Price Elasticity of Demand</h1><p id="cced7e17-3ebc-42bf-9808-e137c329bd0d" class="">Elasticity measures how much one variable responds to changes in another variable.</p><p id="2d2fbcbb-2325-439e-a58f-6656be580cc7" class="">In economics, elasticity is a numerical measure of the responsiveness or <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><msub><mi>Q</mi><mi>d</mi></msub></mrow><annotation encoding="application/x-tex">Q_d</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8777699999999999em;vertical-align:-0.19444em;"></span><span class="mord"><span class="mord mathnormal">Q</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:0.33610799999999996em;"><span style="top:-2.5500000000000003em;margin-left:0em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight">d</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.15em;"><span></span></span></span></span></span></span></span></span></span></span><span></span></span> or <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><msub><mi>Q</mi><mi>S</mi></msub></mrow><annotation encoding="application/x-tex">Q_S</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8777699999999999em;vertical-align:-0.19444em;"></span><span class="mord"><span class="mord mathnormal">Q</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:0.32833099999999993em;"><span style="top:-2.5500000000000003em;margin-left:0em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight" style="margin-right:0.05764em;">S</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.15em;"><span></span></span></span></span></span></span></span></span></span></span><span></span></span> to one of its determinants. </p><p id="1436eba2-3577-4c1b-88f6-fe6f0d1b6a9e" class="">Price elasticity of demand measures how much <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><msub><mi>Q</mi><mi>d</mi></msub></mrow><annotation encoding="application/x-tex">Q_d</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8777699999999999em;vertical-align:-0.19444em;"></span><span class="mord"><span class="mord mathnormal">Q</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:0.33610799999999996em;"><span style="top:-2.5500000000000003em;margin-left:0em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight">d</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.15em;"><span></span></span></span></span></span></span></span></span></span></span><span></span></span> responds to a change in <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>P</mi></mrow><annotation encoding="application/x-tex">P</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.13889em;">P</span></span></span></span></span><span></span></span>.</p><figure id="5621553e-262d-4915-828b-ce81cb8eaefb" class="equation"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><div class="equation-container"><span class="katex-display"><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML" display="block"><semantics><mrow><mtext>Price elasticity of demand</mtext><mo>=</mo><mfrac><mrow><mtext>Precentage change in </mtext><msub><mi>Q</mi><mi>d</mi></msub></mrow><mrow><mtext>Percentage change in </mtext><mi>P</mi></mrow></mfrac></mrow><annotation encoding="application/x-tex">\textrm{Price elasticity of demand} = \frac{\textrm{Precentage change in } Q_d}{\textrm{Percentage change in } P}</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8888799999999999em;vertical-align:-0.19444em;"></span><span class="mord text"><span class="mord textrm">Price elasticity of demand</span></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">=</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:2.25188em;vertical-align:-0.8804400000000001em;"></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:1.3714399999999998em;"><span style="top:-2.314em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord text"><span class="mord textrm">Percentage change in </span></span><span class="mord mathnormal" style="margin-right:0.13889em;">P</span></span></span><span style="top:-3.23em;"><span class="pstrut" style="height:3em;"></span><span class="frac-line" style="border-bottom-width:0.04em;"></span></span><span style="top:-3.677em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord text"><span class="mord textrm">Precentage change in </span></span><span class="mord"><span class="mord mathnormal">Q</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:0.33610799999999996em;"><span style="top:-2.5500000000000003em;margin-left:0em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight">d</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.15em;"><span></span></span></span></span></span></span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.8804400000000001em;"><span></span></span></span></span></span><span class="mclose nulldelimiter"></span></span></span></span></span></span></div></figure><p id="f4db5a3c-849e-4f80-b39f-92b30d9bb3a3" class="">Loosely speaking, it measures the price sensitivity to buyer's demand.</p><p id="0a247338-a711-46e5-a2b8-977c1157cd1c" class="">Along a <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>D</mi></mrow><annotation encoding="application/x-tex">D</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.02778em;">D</span></span></span></span></span><span></span></span> curve, <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>P</mi></mrow><annotation encoding="application/x-tex">P</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.13889em;">P</span></span></span></span></span><span></span></span> and <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>Q</mi></mrow><annotation encoding="application/x-tex">Q</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8777699999999999em;vertical-align:-0.19444em;"></span><span class="mord mathnormal">Q</span></span></span></span></span><span></span></span> move in opposite directions, which would make price elasticity negative.</p><p id="f00dd48d-7a7e-462c-ace5-4d11194cf533" class="">We will drop the minus sign and write all demand elasticities as positive numbers.</p><h3 id="b451c716-2f0c-4c0f-b83f-bbed0c9a1886" class="">Calculating Percentage Changes</h3><p id="738f191d-9b33-49ba-b39a-57e231861a2f" class="">Standard method of computing the percentage change:</p><figure id="0991261d-75de-4ed1-856e-7b40a0d5d1fe" class="equation"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><div class="equation-container"><span class="katex-display"><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML" display="block"><semantics><mrow><mfrac><mrow><mtext>end value</mtext><mo>−</mo><mtext>start value</mtext></mrow><mtext>start value</mtext></mfrac><mo>×</mo><mn>100</mn><mi mathvariant="normal">%</mi></mrow><annotation encoding="application/x-tex">\frac{\textrm{end value} - \textrm{start value}}{\textrm{start value}} \times 100\%</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:2.05744em;vertical-align:-0.686em;"></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:1.37144em;"><span style="top:-2.314em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord text"><span class="mord textrm">start value</span></span></span></span><span style="top:-3.23em;"><span class="pstrut" style="height:3em;"></span><span class="frac-line" style="border-bottom-width:0.04em;"></span></span><span style="top:-3.677em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord text"><span class="mord textrm">end value</span></span><span class="mspace" style="margin-right:0.2222222222222222em;"></span><span class="mbin">−</span><span class="mspace" style="margin-right:0.2222222222222222em;"></span><span class="mord text"><span class="mord textrm">start value</span></span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.686em;"><span></span></span></span></span></span><span class="mclose nulldelimiter"></span></span><span class="mspace" style="margin-right:0.2222222222222222em;"></span><span class="mbin">×</span><span class="mspace" style="margin-right:0.2222222222222222em;"></span></span><span class="base"><span class="strut" style="height:0.80556em;vertical-align:-0.05556em;"></span><span class="mord">100%</span></span></span></span></span></div></figure><figure class="block-color-gray_background callout" style="white-space:pre-wrap;display:flex" id="dca39bab-8090-4bcd-b031-7537e98b3a9b"><div style="font-size:1.5em"><span class="icon">🙄</span></div><div style="width:100%">AP Graders are really picky and want to see all of your work so make sure you actually show the formulas and the work with numbers plugged in.</div></figure><p id="ef7e0570-faa2-4145-9d13-a4d198e6ae02" class="">This method sucks though so we will use the midpoint method for elasticity instead.</p><figure id="04ee9a13-e0dd-4ab8-9d79-1c94322b270b" class="equation"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><div class="equation-container"><span class="katex-display"><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML" display="block"><semantics><mrow><mfrac><mrow><mtext>end value</mtext><mo>−</mo><mtext>start value</mtext></mrow><mtext>midpoint</mtext></mfrac><mo>×</mo><mn>100</mn><mi mathvariant="normal">%</mi></mrow><annotation encoding="application/x-tex">\frac{\textrm{end value} - \textrm{start value}}{\textrm{midpoint}} \times 100\%</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:2.25188em;vertical-align:-0.8804400000000001em;"></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:1.37144em;"><span style="top:-2.314em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord text"><span class="mord textrm">midpoint</span></span></span></span><span style="top:-3.23em;"><span class="pstrut" style="height:3em;"></span><span class="frac-line" style="border-bottom-width:0.04em;"></span></span><span style="top:-3.677em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord text"><span class="mord textrm">end value</span></span><span class="mspace" style="margin-right:0.2222222222222222em;"></span><span class="mbin">−</span><span class="mspace" style="margin-right:0.2222222222222222em;"></span><span class="mord text"><span class="mord textrm">start value</span></span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.8804400000000001em;"><span></span></span></span></span></span><span class="mclose nulldelimiter"></span></span><span class="mspace" style="margin-right:0.2222222222222222em;"></span><span class="mbin">×</span><span class="mspace" style="margin-right:0.2222222222222222em;"></span></span><span class="base"><span class="strut" style="height:0.80556em;vertical-align:-0.05556em;"></span><span class="mord">100%</span></span></span></span></span></div></figure><p id="c345f597-13a8-437e-8e95-29c111ba2bfa" class="">Where the midpoint is the number halfway between the start and end values, the average of those values.</p><figure id="0358affa-ab30-4e78-b6b9-beeecb9b92b7" class="equation"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><div class="equation-container"><span class="katex-display"><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML" display="block"><semantics><mrow><mfrac><mrow><mtext>end value</mtext><mo>−</mo><mtext>start value</mtext></mrow><mrow><mo stretchy="false">(</mo><mtext>end value</mtext><mo>+</mo><mtext>start value</mtext><mo stretchy="false">)</mo><mi mathvariant="normal">/</mi><mn>2</mn></mrow></mfrac><mo>×</mo><mn>100</mn><mi mathvariant="normal">%</mi></mrow><annotation encoding="application/x-tex">\frac{\textrm{end value} - \textrm{start value}}{(\textrm{end value} + \textrm{start value})/2} \times 100\%</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:2.30744em;vertical-align:-0.936em;"></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:1.37144em;"><span style="top:-2.314em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mopen">(</span><span class="mord text"><span class="mord textrm">end value</span></span><span class="mspace" style="margin-right:0.2222222222222222em;"></span><span class="mbin">+</span><span class="mspace" style="margin-right:0.2222222222222222em;"></span><span class="mord text"><span class="mord textrm">start value</span></span><span class="mclose">)</span><span class="mord">/2</span></span></span><span style="top:-3.23em;"><span class="pstrut" style="height:3em;"></span><span class="frac-line" style="border-bottom-width:0.04em;"></span></span><span style="top:-3.677em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord text"><span class="mord textrm">end value</span></span><span class="mspace" style="margin-right:0.2222222222222222em;"></span><span class="mbin">−</span><span class="mspace" style="margin-right:0.2222222222222222em;"></span><span class="mord text"><span class="mord textrm">start value</span></span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.936em;"><span></span></span></span></span></span><span class="mclose nulldelimiter"></span></span><span class="mspace" style="margin-right:0.2222222222222222em;"></span><span class="mbin">×</span><span class="mspace" style="margin-right:0.2222222222222222em;"></span></span><span class="base"><span class="strut" style="height:0.80556em;vertical-align:-0.05556em;"></span><span class="mord">100%</span></span></span></span></span></div></figure><h2 id="2d37f008-9a02-4b91-8253-7e58556f862d" class="">Determinants of Price Elasticity</h2><ul id="120ac2d4-b5ba-49b9-90ed-f87b27797ae5" class="bulleted-list"><li style="list-style-type:disc">The extent to which close substitutes are available</li></ul><ul id="bf3a4fc4-2f19-4c43-bc43-1c4ef00e8558" class="bulleted-list"><li style="list-style-type:disc">Whether the good is a necessity or a luxury</li></ul><ul id="cea986aa-fc5c-4c92-b212-4f6c850e6e20" class="bulleted-list"><li style="list-style-type:disc">How broadly or narrowly the good is defined</li></ul><ul id="7adb91cd-b7be-4e8a-949d-967fa0395d35" class="bulleted-list"><li style="list-style-type:disc">The time horizon - </li></ul><h2 id="27e47460-42b9-4d75-86db-c4c96454e275" class="">Inelastic Demand</h2><p id="18a3c455-90a0-4eff-bc00-ed218b43a53a" class="">When the price elasticity of demand is <1, it is considered inelastic demand. That is, the customer's sensitivity to price is relatively low.</p><p id="f554aff7-fe00-4a71-9b40-ed39184ef765" class="">When <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>D</mi></mrow><annotation encoding="application/x-tex">D</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.02778em;">D</span></span></span></span></span><span></span></span> is inelastic, a price increase causes revenue to <strong>grow</strong>.</p><figure id="d01f315e-6ac0-49e1-aba4-11d357ca04c7" class="image"><a href="Unit%202%20Supply%20and%20Demand%2049cf04a95dd7439cb48e237f885334e1/Untitled%202.png"><img style="width:1602px" src="Unit%202%20Supply%20and%20Demand%2049cf04a95dd7439cb48e237f885334e1/Untitled%202.png"/></a></figure><h2 id="90b85613-313d-4b9c-abb6-102fe78de23e" class="">Unit Elastic Demand</h2><p id="c3504144-803a-42e6-b257-1d0dd273d392" class="">When the price elasticity of demand =1, this is considered unit elastic demand. This means that consumer's sensitivity to price is intermediate. A change in price with unit elastic demand has no effect on revenue for businesses. </p><figure id="0bca56d0-f4a5-4fd2-96b1-1da465df1bfe" class="image"><a href="Unit%202%20Supply%20and%20Demand%2049cf04a95dd7439cb48e237f885334e1/Untitled%203.png"><img style="width:514px" src="Unit%202%20Supply%20and%20Demand%2049cf04a95dd7439cb48e237f885334e1/Untitled%203.png"/></a></figure><h2 id="1229720e-f829-496e-836c-36507f286947" class="">Elastic Demand</h2><p id="7954c352-2d28-4f5f-88a9-1fa3d6d31161" class="">When the price elasticity of demand >1, this is considered elastic demand. Price sensitivity is relatively high. The change in <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><msub><mi>Q</mi><mi>D</mi></msub></mrow><annotation encoding="application/x-tex">Q_D</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8777699999999999em;vertical-align:-0.19444em;"></span><span class="mord"><span class="mord mathnormal">Q</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:0.32833099999999993em;"><span style="top:-2.5500000000000003em;margin-left:0em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight" style="margin-right:0.02778em;">D</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.15em;"><span></span></span></span></span></span></span></span></span></span></span><span></span></span> is greater than the change in <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>P</mi></mrow><annotation encoding="application/x-tex">P</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.13889em;">P</span></span></span></span></span><span></span></span>.</p><p id="6604fc5b-6438-4804-b8c5-c93488e9591a" class="">When <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>D</mi></mrow><annotation encoding="application/x-tex">D</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.02778em;">D</span></span></span></span></span><span></span></span> is elastic, a price increase causes revenue to <strong>fall</strong>.</p><figure id="38a6cee4-1eed-4fa0-83af-c2ed38af008f" class="image"><a href="Unit%202%20Supply%20and%20Demand%2049cf04a95dd7439cb48e237f885334e1/Untitled%204.png"><img style="width:631px" src="Unit%202%20Supply%20and%20Demand%2049cf04a95dd7439cb48e237f885334e1/Untitled%204.png"/></a></figure><h2 id="e9cd9377-1694-417e-88df-986a6006bff8" class="">Perfectly Elastic Demand</h2><p id="95140163-794f-4e62-b7ed-d59b97a7ac0d" class="">When the <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>D</mi></mrow><annotation encoding="application/x-tex">D</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.02778em;">D</span></span></span></span></span><span></span></span> curve is completely horizontal, the price elasticity of demand =<style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi mathvariant="normal">∞</mi></mrow><annotation encoding="application/x-tex">\infin</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.43056em;vertical-align:0em;"></span><span class="mord">∞</span></span></span></span></span><span></span></span> and consumer's price sensitivity is extreme. </p><figure id="d48af117-ae66-4215-98fa-ed541081dd65" class="image"><a href="Unit%202%20Supply%20and%20Demand%2049cf04a95dd7439cb48e237f885334e1/Untitled%205.png"><img style="width:680px" src="Unit%202%20Supply%20and%20Demand%2049cf04a95dd7439cb48e237f885334e1/Untitled%205.png"/></a></figure><h1 id="0c47f243-c3b9-4e87-b517-6181cbe07a58" class="">2.4 - Price Elasticity of Supply</h1><h2 id="6559abc7-8e41-47a6-837f-587d14ed07c1" class="">Perfectly Inelastic Supply</h2><figure id="c11fe7b6-78bb-4cbd-9daf-aa20d98bd65f" class="equation"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><div class="equation-container"><span class="katex-display"><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML" display="block"><semantics><mrow><mtext>Price elasticity of supply</mtext><mo>=</mo><mfrac><mtext>% change in Q</mtext><mtext>% change in P</mtext></mfrac><mo>=</mo><mfrac><mrow><mn>0</mn><mi mathvariant="normal">%</mi></mrow><mrow><mn>10</mn><mi mathvariant="normal">%</mi></mrow></mfrac><mo>=</mo><mn>0</mn></mrow><annotation encoding="application/x-tex">\textrm{Price elasticity of supply} = \frac{\textrm{\% change in Q}}{\textrm{\% change in P}} = \frac{0\%}{10\%} = 0</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8888799999999999em;vertical-align:-0.19444em;"></span><span class="mord text"><span class="mord textrm">Price elasticity of supply</span></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">=</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:2.30744em;vertical-align:-0.8804400000000001em;"></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:1.427em;"><span style="top:-2.314em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord text"><span class="mord textrm">% change in P</span></span></span></span><span style="top:-3.23em;"><span class="pstrut" style="height:3em;"></span><span class="frac-line" style="border-bottom-width:0.04em;"></span></span><span style="top:-3.677em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord text"><span class="mord textrm">% change in Q</span></span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.8804400000000001em;"><span></span></span></span></span></span><span class="mclose nulldelimiter"></span></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">=</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:2.1685600000000003em;vertical-align:-0.74156em;"></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:1.427em;"><span style="top:-2.314em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord">10%</span></span></span><span style="top:-3.23em;"><span class="pstrut" style="height:3em;"></span><span class="frac-line" style="border-bottom-width:0.04em;"></span></span><span style="top:-3.6769999999999996em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord">0%</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.74156em;"><span></span></span></span></span></span><span class="mclose nulldelimiter"></span></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">=</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:0.64444em;vertical-align:0em;"></span><span class="mord">0</span></span></span></span></span></div></figure><ul id="19ca7bd2-508c-4103-8a1f-89ee1d738c6d" class="bulleted-list"><li style="list-style-type:disc"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>S</mi></mrow><annotation encoding="application/x-tex">S</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.05764em;">S</span></span></span></span></span><span></span></span> curve is vertical</li></ul><ul id="88c46889-bd8a-42a2-8ed6-c4d577df0334" class="bulleted-list"><li style="list-style-type:disc">Seller's price sensitivity is zero</li></ul><h2 id="bd83ec12-89ac-431b-a1ad-fc9bed90216f" class="">Inelastic Supply</h2><figure id="45c87ed5-18b9-4c99-b6a6-2688da19dcb2" class="equation"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><div class="equation-container"><span class="katex-display"><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML" display="block"><semantics><mrow><mtext>Price elasticity of supply</mtext><mo>=</mo><mfrac><mtext>% change in Q</mtext><mtext>% change in P</mtext></mfrac><mo>=</mo><mfrac><mrow><mo><</mo><mn>10</mn><mi mathvariant="normal">%</mi></mrow><mrow><mn>10</mn><mi mathvariant="normal">%</mi></mrow></mfrac><mo><</mo><mn>1</mn></mrow><annotation encoding="application/x-tex">\textrm{Price elasticity of supply} = \frac{\textrm{\% change in Q}}{\textrm{\% change in P}} = \frac{<10\%}{10\%} < 1</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8888799999999999em;vertical-align:-0.19444em;"></span><span class="mord text"><span class="mord textrm">Price elasticity of supply</span></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">=</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:2.30744em;vertical-align:-0.8804400000000001em;"></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:1.427em;"><span style="top:-2.314em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord text"><span class="mord textrm">% change in P</span></span></span></span><span style="top:-3.23em;"><span class="pstrut" style="height:3em;"></span><span class="frac-line" style="border-bottom-width:0.04em;"></span></span><span style="top:-3.677em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord text"><span class="mord textrm">% change in Q</span></span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.8804400000000001em;"><span></span></span></span></span></span><span class="mclose nulldelimiter"></span></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">=</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:2.1685600000000003em;vertical-align:-0.74156em;"></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:1.427em;"><span style="top:-2.314em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord">10%</span></span></span><span style="top:-3.23em;"><span class="pstrut" style="height:3em;"></span><span class="frac-line" style="border-bottom-width:0.04em;"></span></span><span style="top:-3.6769999999999996em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mrel"><</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mord">10%</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.74156em;"><span></span></span></span></span></span><span class="mclose nulldelimiter"></span></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel"><</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:0.64444em;vertical-align:0em;"></span><span class="mord">1</span></span></span></span></span></div></figure><ul id="ef252f03-258a-48ff-9cbc-2d996a625e4b" class="bulleted-list"><li style="list-style-type:disc"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>S</mi></mrow><annotation encoding="application/x-tex">S</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.05764em;">S</span></span></span></span></span><span></span></span> curve is relatively steep</li></ul><ul id="f2f5c8ef-6f3b-4172-8837-81efaa32a9b6" class="bulleted-list"><li style="list-style-type:disc">Seller's price sensitivity is relatively low</li></ul><h2 id="088eb011-f6c0-498e-9d31-3749e4812781" class="">Unit Elastic Supply</h2><figure id="765252d4-65e9-4083-9e49-491fd42066d9" class="equation"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><div class="equation-container"><span class="katex-display"><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML" display="block"><semantics><mrow><mtext>Price elasticity of supply</mtext><mo>=</mo><mfrac><mtext>% change in Q</mtext><mtext>% change in P</mtext></mfrac><mo>=</mo><mfrac><mrow><mn>10</mn><mi mathvariant="normal">%</mi></mrow><mrow><mn>10</mn><mi mathvariant="normal">%</mi></mrow></mfrac><mo>=</mo><mn>1</mn></mrow><annotation encoding="application/x-tex">\textrm{Price elasticity of supply} = \frac{\textrm{\% change in Q}}{\textrm{\% change in P}} = \frac{10\%}{10\%} = 1</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8888799999999999em;vertical-align:-0.19444em;"></span><span class="mord text"><span class="mord textrm">Price elasticity of supply</span></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">=</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:2.30744em;vertical-align:-0.8804400000000001em;"></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:1.427em;"><span style="top:-2.314em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord text"><span class="mord textrm">% change in P</span></span></span></span><span style="top:-3.23em;"><span class="pstrut" style="height:3em;"></span><span class="frac-line" style="border-bottom-width:0.04em;"></span></span><span style="top:-3.677em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord text"><span class="mord textrm">% change in Q</span></span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.8804400000000001em;"><span></span></span></span></span></span><span class="mclose nulldelimiter"></span></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">=</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:2.1685600000000003em;vertical-align:-0.74156em;"></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:1.427em;"><span style="top:-2.314em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord">10%</span></span></span><span style="top:-3.23em;"><span class="pstrut" style="height:3em;"></span><span class="frac-line" style="border-bottom-width:0.04em;"></span></span><span style="top:-3.6769999999999996em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord">10%</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.74156em;"><span></span></span></span></span></span><span class="mclose nulldelimiter"></span></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">=</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:0.64444em;vertical-align:0em;"></span><span class="mord">1</span></span></span></span></span></div></figure><ul id="9d33ea8c-c559-47f3-8adb-e46e122b810a" class="bulleted-list"><li style="list-style-type:disc"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>S</mi></mrow><annotation encoding="application/x-tex">S</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.05764em;">S</span></span></span></span></span><span></span></span> curve has an intermediate slope</li></ul><ul id="f72bd873-ac79-4dae-9663-7d755e45ef1c" class="bulleted-list"><li style="list-style-type:disc">Seller's price sensitivity is intermediate</li></ul><h2 id="3f1ff910-c03c-481b-baf6-65d79dca7da4" class="">Elastic Supply</h2><figure id="14dc5899-6fba-4728-abc6-4086ac578126" class="equation"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><div class="equation-container"><span class="katex-display"><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML" display="block"><semantics><mrow><mtext>Price elasticity of supply</mtext><mo>=</mo><mfrac><mtext>% change in Q</mtext><mtext>% change in P</mtext></mfrac><mo>=</mo><mfrac><mrow><mo>></mo><mn>10</mn><mi mathvariant="normal">%</mi></mrow><mrow><mn>10</mn><mi mathvariant="normal">%</mi></mrow></mfrac><mo>></mo><mn>1</mn></mrow><annotation encoding="application/x-tex">\textrm{Price elasticity of supply} = \frac{\textrm{\% change in Q}}{\textrm{\% change in P}} = \frac{>10\%}{10\%} > 1</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8888799999999999em;vertical-align:-0.19444em;"></span><span class="mord text"><span class="mord textrm">Price elasticity of supply</span></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">=</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:2.30744em;vertical-align:-0.8804400000000001em;"></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:1.427em;"><span style="top:-2.314em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord text"><span class="mord textrm">% change in P</span></span></span></span><span style="top:-3.23em;"><span class="pstrut" style="height:3em;"></span><span class="frac-line" style="border-bottom-width:0.04em;"></span></span><span style="top:-3.677em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord text"><span class="mord textrm">% change in Q</span></span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.8804400000000001em;"><span></span></span></span></span></span><span class="mclose nulldelimiter"></span></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">=</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:2.1685600000000003em;vertical-align:-0.74156em;"></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:1.427em;"><span style="top:-2.314em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord">10%</span></span></span><span style="top:-3.23em;"><span class="pstrut" style="height:3em;"></span><span class="frac-line" style="border-bottom-width:0.04em;"></span></span><span style="top:-3.6769999999999996em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mrel">></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mord">10%</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.74156em;"><span></span></span></span></span></span><span class="mclose nulldelimiter"></span></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:0.64444em;vertical-align:0em;"></span><span class="mord">1</span></span></span></span></span></div></figure><ul id="1b4f8deb-9f10-465d-9874-a101ebcad40d" class="bulleted-list"><li style="list-style-type:disc"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>S</mi></mrow><annotation encoding="application/x-tex">S</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.05764em;">S</span></span></span></span></span><span></span></span> curve has a relatively flat slope</li></ul><ul id="caf2f630-bfe1-4e72-84b2-83ce628881df" class="bulleted-list"><li style="list-style-type:disc">Seller's price sensitivity is relatively high</li></ul><h2 id="024d049d-ebaf-4d01-bde2-06d2d5a4b136" class="">Perfectly Elastic Supply</h2><figure id="8837f169-ccbe-46ac-be2c-88cbff969fdf" class="equation"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><div class="equation-container"><span class="katex-display"><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML" display="block"><semantics><mrow><mtext>Price elasticity of supply</mtext><mo>=</mo><mfrac><mtext>% change in Q</mtext><mtext>% change in P</mtext></mfrac><mo>=</mo><mfrac><mrow><mtext>any </mtext><mi mathvariant="normal">%</mi></mrow><mrow><mn>0</mn><mi mathvariant="normal">%</mi></mrow></mfrac><mo>=</mo><mi mathvariant="normal">∞</mi></mrow><annotation encoding="application/x-tex">\textrm{Price elasticity of supply} = \frac{\textrm{\% change in Q}}{\textrm{\% change in P}} = \frac{\textrm{any} \space \%}{0\%} = \infin</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8888799999999999em;vertical-align:-0.19444em;"></span><span class="mord text"><span class="mord textrm">Price elasticity of supply</span></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">=</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:2.30744em;vertical-align:-0.8804400000000001em;"></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:1.427em;"><span style="top:-2.314em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord text"><span class="mord textrm">% change in P</span></span></span></span><span style="top:-3.23em;"><span class="pstrut" style="height:3em;"></span><span class="frac-line" style="border-bottom-width:0.04em;"></span></span><span style="top:-3.677em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord text"><span class="mord textrm">% change in Q</span></span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.8804400000000001em;"><span></span></span></span></span></span><span class="mclose nulldelimiter"></span></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">=</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:2.1685600000000003em;vertical-align:-0.74156em;"></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:1.427em;"><span style="top:-2.314em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord">0%</span></span></span><span style="top:-3.23em;"><span class="pstrut" style="height:3em;"></span><span class="frac-line" style="border-bottom-width:0.04em;"></span></span><span style="top:-3.677em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord text"><span class="mord textrm">any</span></span><span class="mspace"> </span><span class="mord">%</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.74156em;"><span></span></span></span></span></span><span class="mclose nulldelimiter"></span></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">=</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:0.43056em;vertical-align:0em;"></span><span class="mord">∞</span></span></span></span></span></div></figure><ul id="85553727-8722-43c7-b7f1-4a7e8f832bb7" class="bulleted-list"><li style="list-style-type:disc"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>S</mi></mrow><annotation encoding="application/x-tex">S</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.05764em;">S</span></span></span></span></span><span></span></span> curve is horizontal</li></ul><ul id="89aa37ef-fdef-4b0a-97db-0f27f08333da" class="bulleted-list"><li style="list-style-type:disc">Seller's price sensitivity is infinite</li></ul><h2 id="956d31be-1879-4315-bbc0-a87071fe8162" class="">Determinants of Supply Elasticity</h2><ul id="76652900-0967-49eb-815b-ee9483f29bc2" class="bulleted-list"><li style="list-style-type:disc">The more easily sellers can change the quantity they produce, the greater the price elasticity of supply.<ul id="b6502187-6db3-4a27-9c50-70932ff30e01" class="bulleted-list"><li style="list-style-type:circle">Example: Supply of beachfront property is harder to vary and thus less elastic than supply of new cars.</li></ul></li></ul><ul id="42f5eb3c-2007-4511-8567-db58366039c0" class="bulleted-list"><li style="list-style-type:disc">For many goods, price elasticity of supply is greater in the long run than in the short run, because firms can build new factories, or new firms may be able to enter the market. </li></ul><h1 id="2a358291-8c23-4054-9703-fe4270b73a09" class="">2.5 - Other Elasticities</h1><h2 id="f5e2fb30-498d-4ef9-8472-369ba549d16c" class="">Income Elasticity of Demand</h2><p id="300879e3-fc06-47d2-aa27-152988412bd6" class="">Measures the response of <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><msub><mi>Q</mi><mi>d</mi></msub></mrow><annotation encoding="application/x-tex">Q_d</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8777699999999999em;vertical-align:-0.19444em;"></span><span class="mord"><span class="mord mathnormal">Q</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:0.33610799999999996em;"><span style="top:-2.5500000000000003em;margin-left:0em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight">d</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.15em;"><span></span></span></span></span></span></span></span></span></span></span><span></span></span> to a change in consumer income.</p><figure id="0c84be97-598a-4a77-a7db-a358bbf23af1" class="equation"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><div class="equation-container"><span class="katex-display"><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML" display="block"><semantics><mrow><mtext>Income elasticity of demand</mtext><mo>=</mo><mfrac><mrow><mtext>Percent change in </mtext><msub><mi>Q</mi><mi>d</mi></msub></mrow><mtext>Percent change in income</mtext></mfrac></mrow><annotation encoding="application/x-tex">\textrm{Income elasticity of demand} = \frac{\textrm{Percent change in } Q_d}{\textrm{Percent change in income}}</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8888799999999999em;vertical-align:-0.19444em;"></span><span class="mord text"><span class="mord textrm">Income elasticity of demand</span></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">=</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:2.25188em;vertical-align:-0.8804400000000001em;"></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:1.3714399999999998em;"><span style="top:-2.314em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord text"><span class="mord textrm">Percent change in income</span></span></span></span><span style="top:-3.23em;"><span class="pstrut" style="height:3em;"></span><span class="frac-line" style="border-bottom-width:0.04em;"></span></span><span style="top:-3.677em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord text"><span class="mord textrm">Percent change in </span></span><span class="mord"><span class="mord mathnormal">Q</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:0.33610799999999996em;"><span style="top:-2.5500000000000003em;margin-left:0em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight">d</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.15em;"><span></span></span></span></span></span></span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.8804400000000001em;"><span></span></span></span></span></span><span class="mclose nulldelimiter"></span></span></span></span></span></span></div></figure><ul id="9ce5aa85-f2e4-4d80-b330-c63d1086ac64" class="bulleted-list"><li style="list-style-type:disc">For normal goods, the income elasticity of demand is > 0 (positive), while for inferior goods, the income elasticity of demand is < 0 (negative).</li></ul><h2 id="4de55ca6-3e21-4506-ab5c-6b50ab1b676e" class="">Cross-price Elasticity of Demand</h2><p id="28c8107a-9a23-4476-a543-bbc50a3bede5" class="">Measures the response of demand for one good to changes in the price of another good.</p><figure id="4109179c-1f18-4026-b88b-da9f7a171ad4" class="equation"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><div class="equation-container"><span class="katex-display"><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML" display="block"><semantics><mrow><mtext>Cross-price elasticity of demand</mtext><mo>=</mo><mfrac><mrow><mtext>Percent change in </mtext><msub><mi>Q</mi><mi>d</mi></msub><mtext> for good 1</mtext></mrow><mtext>Percent change in price for good 2</mtext></mfrac></mrow><annotation encoding="application/x-tex">\textrm{Cross-price elasticity of demand} = \frac{\textrm{Percent change in } Q_d \textrm{ for good 1}}{\textrm{Percent change in price for good 2}}</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8888799999999999em;vertical-align:-0.19444em;"></span><span class="mord text"><span class="mord textrm">Cross-price elasticity of demand</span></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">=</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:2.25188em;vertical-align:-0.8804400000000001em;"></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:1.3714399999999998em;"><span style="top:-2.314em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord text"><span class="mord textrm">Percent change in price for good 2</span></span></span></span><span style="top:-3.23em;"><span class="pstrut" style="height:3em;"></span><span class="frac-line" style="border-bottom-width:0.04em;"></span></span><span style="top:-3.677em;"><span class="pstrut" style="height:3em;"></span><span class="mord"><span class="mord text"><span class="mord textrm">Percent change in </span></span><span class="mord"><span class="mord mathnormal">Q</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:0.33610799999999996em;"><span style="top:-2.5500000000000003em;margin-left:0em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight">d</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.15em;"><span></span></span></span></span></span></span><span class="mord text"><span class="mord textrm"> for good 1</span></span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.8804400000000001em;"><span></span></span></span></span></span><span class="mclose nulldelimiter"></span></span></span></span></span></span></div></figure><ul id="7ce73343-cebf-444e-8caa-834592b04ea0" class="bulleted-list"><li style="list-style-type:disc">For substitutes, cross-price elasticity > 0 (e.g. an increase in price of beef causes an increase in demand for chicken)</li></ul><ul id="2670f4cd-77dc-4f1e-ac6c-8f6f0e18a11d" class="bulleted-list"><li style="list-style-type:disc">For complements, cross-price elasticity < 0 (e.g. an increase in the price of computers causes a decrease in demand for software)</li></ul><h1 id="5eba7469-45e9-42e6-84bc-b18ab4ac986b" class="">2.6 - Market Equilibrium and Consumer and Producer Surplus</h1><h2 id="b91a5b3a-4015-4d3a-a30e-e2c744271dcf" class="">Surplus (excess supply)</h2><p id="140e61f9-aafd-4e93-b879-90e0ee9da374" class="">When quantity supplied is greater than quantity demanded, surplus is the excess quantity supplied that is not demanded. Any price above equilibrium creates a surplus. Price will eventually decrease until it stabilizes at equilibrium. </p><h2 id="82fa99a2-daa0-409c-9107-1a227f0336e4" class="">Shortage (excess demand)</h2><p id="f9f09706-bae8-40c5-a156-cb757124ff68" class="">When quantity demanded is greater than quantity supplied, the difference between quantity demanded and quantity supplied is the shortage. Any price below equilibrium will create a shortage. Price will eventually increase to reach equilibrium again. </p><h2 id="0679e9a4-e143-4356-8102-df6bf837b2b0" class="">Willingness to Purchase (WTP)</h2><p id="70dc3577-0de1-41c4-a241-ac801a165236" class="">Willingness to purchase is the measure of the highest price at which a buyer is willing to purchase a good. At any <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>Q</mi></mrow><annotation encoding="application/x-tex">Q</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8777699999999999em;vertical-align:-0.19444em;"></span><span class="mord mathnormal">Q</span></span></span></span></span><span></span></span>, the height of the <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>D</mi></mrow><annotation encoding="application/x-tex">D</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.02778em;">D</span></span></span></span></span><span></span></span> curve is the WTP of the marginal buyer. </p><h2 id="abb91f83-5382-4c65-938c-15eb0a0b28a8" class="">Consumer Surplus (CS)</h2><p id="b517bf9c-9a2e-4cb5-ad29-f84ea813cd2f" class="">Consumer surplus is the amount a buyer is willing to pay minus the amount the buyer actually pays.</p><figure id="71cf7703-0148-40b8-83cb-17d605c97eda" class="equation"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><div class="equation-container"><span class="katex-display"><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML" display="block"><semantics><mrow><mi>C</mi><mi>S</mi><mo>=</mo><mi>W</mi><mi>T</mi><mi>P</mi><mo>−</mo><mi>P</mi></mrow><annotation encoding="application/x-tex">CS = WTP - P</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.05764em;">CS</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">=</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:0.76666em;vertical-align:-0.08333em;"></span><span class="mord mathnormal" style="margin-right:0.13889em;">W</span><span class="mord mathnormal" style="margin-right:0.13889em;">TP</span><span class="mspace" style="margin-right:0.2222222222222222em;"></span><span class="mbin">−</span><span class="mspace" style="margin-right:0.2222222222222222em;"></span></span><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.13889em;">P</span></span></span></span></span></div></figure><p id="9ff274d9-fd6c-4578-be94-822ace538f95" class="">On a demand curve, the consumer surplus is the area above the given price but below the demand curve, from <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mn>0</mn></mrow><annotation encoding="application/x-tex">0</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.64444em;vertical-align:0em;"></span><span class="mord">0</span></span></span></span></span><span></span></span> to <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>Q</mi></mrow><annotation encoding="application/x-tex">Q</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8777699999999999em;vertical-align:-0.19444em;"></span><span class="mord mathnormal">Q</span></span></span></span></span><span></span></span>.</p><h2 id="97e26847-92ee-4169-b12f-a1ae1ca76d45" class="">Cost and the Supply Curve</h2><p id="eca49976-f0e4-418e-b679-22ba78ea6071" class=""><strong>Cost</strong> is the value of everything a seller must give up to produce a good (i.e. opportunity cost). This includes the cost of all resources used to produce the goods, including the value of the seller's time.</p><p id="4b263278-b5ae-4ee1-8ac9-aad94ce376ba" class="">A seller will produce and sell the good/service only if the price exceeds the cost, that is, they can make a profit.</p><p id="69e3669f-977c-40f1-a84b-80dc50dde2b3" class="">At each <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>Q</mi></mrow><annotation encoding="application/x-tex">Q</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8777699999999999em;vertical-align:-0.19444em;"></span><span class="mord mathnormal">Q</span></span></span></span></span><span></span></span>, the height of the <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>S</mi></mrow><annotation encoding="application/x-tex">S</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.05764em;">S</span></span></span></span></span><span></span></span> curve is the cost of the <strong>marginal seller</strong>, the seller who would leave the market if the price were any lower.</p><h2 id="9a883abf-de07-4658-b686-e9e771fa7fe6" class="">Producer Surplus</h2><p id="c379fde1-71ae-4889-af09-07d3b95d5550" class="">Producer surplus equals the price of a good minus the cost of it's production.</p><figure id="4919e29b-f402-46f2-b827-8d214cf57c94" class="equation"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><div class="equation-container"><span class="katex-display"><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML" display="block"><semantics><mrow><mi>P</mi><mi>S</mi><mo>=</mo><mi>P</mi><mo>−</mo><mi>C</mi></mrow><annotation encoding="application/x-tex">PS = P - C</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.05764em;">PS</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">=</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:0.76666em;vertical-align:-0.08333em;"></span><span class="mord mathnormal" style="margin-right:0.13889em;">P</span><span class="mspace" style="margin-right:0.2222222222222222em;"></span><span class="mbin">−</span><span class="mspace" style="margin-right:0.2222222222222222em;"></span></span><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.07153em;">C</span></span></span></span></span></div></figure><p id="018b5667-e3ae-4d35-89f9-219e7b4bd02a" class="">On a supply curve, the producer surplus is the area above the supply curve and below the price of the good.</p><h1 id="85a919f1-de20-47d2-9b1f-901deda9aa2f" class="">2.7 - Market Disequilibrium and Changes in Equilibrium</h1><h2 id="c01e8b4a-0ea3-4a82-b5f0-cea19209b7da" class="">Effects of a change in Supply or Demand</h2><figure id="d62101be-eb8f-4e22-b073-4f27c19f291a" class="image"><a href="Unit%202%20Supply%20and%20Demand%2049cf04a95dd7439cb48e237f885334e1/PXL_20211014_151135535.jpg"><img style="width:2583px" src="Unit%202%20Supply%20and%20Demand%2049cf04a95dd7439cb48e237f885334e1/PXL_20211014_151135535.jpg"/></a></figure><h2 id="c74ec145-365a-4dd2-b19f-c728c32259ab" class="">Total Surplus & Efficiency</h2><p id="911c9f35-63f5-41fa-89e0-d8a211d8c5d7" class="">The total surplus is the sum of consumer and producer surplus.</p><figure id="baa76392-670f-4cf0-8042-70b65e4feb51" class="equation"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><div class="equation-container"><span class="katex-display"><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML" display="block"><semantics><mrow><mtext>TS</mtext><mo>=</mo><mtext>CS</mtext><mo>+</mo><mtext>PS</mtext></mrow><annotation encoding="application/x-tex">\textrm{TS} = \textrm{CS} + \textrm{PS}</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord text"><span class="mord textrm">TS</span></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">=</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:0.76666em;vertical-align:-0.08333em;"></span><span class="mord text"><span class="mord textrm">CS</span></span><span class="mspace" style="margin-right:0.2222222222222222em;"></span><span class="mbin">+</span><span class="mspace" style="margin-right:0.2222222222222222em;"></span></span><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord text"><span class="mord textrm">PS</span></span></span></span></span></span></div></figure><p id="e79d54b8-f0f4-4ec5-8a8f-16dfbb7ad0ef" class="">Another way of putting this is that the total surplus is the <strong>value to buyers</strong> minus the <strong>cost to sellers</strong>.</p><figure id="79342aa2-325d-4e7f-808c-65ffac42963c" class="equation"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><div class="equation-container"><span class="katex-display"><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML" display="block"><semantics><mrow><mtext>Total surplus</mtext><mo>=</mo><mo stretchy="false">(</mo><mtext>value to buyers</mtext><mo stretchy="false">)</mo><mo>−</mo><mo stretchy="false">(</mo><mtext>cost to sellers</mtext><mo stretchy="false">)</mo></mrow><annotation encoding="application/x-tex">\textrm{Total surplus} = (\textrm{value to buyers}) - (\textrm{cost to sellers})</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8888799999999999em;vertical-align:-0.19444em;"></span><span class="mord text"><span class="mord textrm">Total surplus</span></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">=</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:1em;vertical-align:-0.25em;"></span><span class="mopen">(</span><span class="mord text"><span class="mord textrm">value to buyers</span></span><span class="mclose">)</span><span class="mspace" style="margin-right:0.2222222222222222em;"></span><span class="mbin">−</span><span class="mspace" style="margin-right:0.2222222222222222em;"></span></span><span class="base"><span class="strut" style="height:1em;vertical-align:-0.25em;"></span><span class="mopen">(</span><span class="mord text"><span class="mord textrm">cost to sellers</span></span><span class="mclose">)</span></span></span></span></span></div></figure><p id="44b31e98-b450-44cf-9566-165947489ced" class="">An allocation of resources is <strong>efficient</strong> if it maximizes the total surplus. Efficiency means:</p><ul id="6621e3d7-d037-4ac8-ba14-a39aa0d07d3a" class="bulleted-list"><li style="list-style-type:disc">The goods are consumed by the buyers who value them most highly.</li></ul><ul id="b8e76020-b231-49c1-aaee-aa95969fdd7d" class="bulleted-list"><li style="list-style-type:disc">The goods are produced by the producers with the lowest costs.</li></ul><ul id="16b4fe7b-ecfa-410f-b8c6-7bfc7a747abf" class="bulleted-list"><li style="list-style-type:disc">Raising or lowering the quantity of a good would not increase the total surplus.</li></ul><figure id="e4bce0c1-740e-46e9-93e3-224130edcb85" class="image"><a href="Unit%202%20Supply%20and%20Demand%2049cf04a95dd7439cb48e237f885334e1/highly-competitive-market-graph.png"><img style="width:1764px" src="Unit%202%20Supply%20and%20Demand%2049cf04a95dd7439cb48e237f885334e1/highly-competitive-market-graph.png"/></a></figure><h1 id="b5617c51-5aee-4035-b80d-604d650689fe" class="">2.8 - The Effects of Government Intervention in Markets</h1><p id="47aaf2bf-a2df-46e2-beaa-6661f8ee1fe6" class="">When the equilibrium price of a good is deemed too high by a government, they will put in place a <strong>price ceiling</strong> below the natural equilibrium price (binding). This is a maximum price of a good in a market. Instituting a price ceiling will create a shortage, as now <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><msub><mi>Q</mi><mi>S</mi></msub></mrow><annotation encoding="application/x-tex">Q_S</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8777699999999999em;vertical-align:-0.19444em;"></span><span class="mord"><span class="mord mathnormal">Q</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:0.32833099999999993em;"><span style="top:-2.5500000000000003em;margin-left:0em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight" style="margin-right:0.05764em;">S</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.15em;"><span></span></span></span></span></span></span></span></span></span></span><span></span></span> is less than <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><msub><mi>Q</mi><mi>D</mi></msub></mrow><annotation encoding="application/x-tex">Q_D</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8777699999999999em;vertical-align:-0.19444em;"></span><span class="mord"><span class="mord mathnormal">Q</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:0.32833099999999993em;"><span style="top:-2.5500000000000003em;margin-left:0em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight" style="margin-right:0.02778em;">D</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.15em;"><span></span></span></span></span></span></span></span></span></span></span><span></span></span>.</p><h2 id="18201605-5971-4248-b7df-d3f400d60e6b" class="">Effects of a Tax</h2><p id="711a3a00-7300-4300-8390-e39d777ef50a" class="">The size of a tax can be represented by <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi mathvariant="normal">$</mi><mi>T</mi></mrow><annotation encoding="application/x-tex">\$T</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.80556em;vertical-align:-0.05556em;"></span><span class="mord">$</span><span class="mord mathnormal" style="margin-right:0.13889em;">T</span></span></span></span></span><span></span></span>. The government's revenue from tax is represented by:</p><figure id="50537976-2a05-4aa0-8c8a-5cdc440c195d" class="equation"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><div class="equation-container"><span class="katex-display"><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML" display="block"><semantics><mrow><mi mathvariant="normal">$</mi><mi>T</mi><mo>⋅</mo><msub><mi>P</mi><mi>T</mi></msub></mrow><annotation encoding="application/x-tex">\$ T \cdot P_T</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.80556em;vertical-align:-0.05556em;"></span><span class="mord">$</span><span class="mord mathnormal" style="margin-right:0.13889em;">T</span><span class="mspace" style="margin-right:0.2222222222222222em;"></span><span class="mbin">⋅</span><span class="mspace" style="margin-right:0.2222222222222222em;"></span></span><span class="base"><span class="strut" style="height:0.83333em;vertical-align:-0.15em;"></span><span class="mord"><span class="mord mathnormal" style="margin-right:0.13889em;">P</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:0.32833099999999993em;"><span style="top:-2.5500000000000003em;margin-left:-0.13889em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight" style="margin-right:0.13889em;">T</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.15em;"><span></span></span></span></span></span></span></span></span></span></span></div></figure><p id="9c664547-5097-486c-a89b-ebea2d893772" class="">With a tax, both <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>C</mi><mi>S</mi></mrow><annotation encoding="application/x-tex">CS</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.05764em;">CS</span></span></span></span></span><span></span></span> and <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>P</mi><mi>S</mi></mrow><annotation encoding="application/x-tex">PS</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.05764em;">PS</span></span></span></span></span><span></span></span> are reduced, and the area between them is the tax revenue. The area to the right of the tax revenue becomes dead weight loss.</p><p id="46856839-2154-447b-b544-1fbe5bff94e4" class="">Taxes can be considered a form of surplus, and therefore are incorporated into total surplus. </p><h2 id="b81dc516-c45f-4bfa-a768-d37b5144c533" class="">Deadweight Loss</h2><p id="2c63f6e0-d2db-4fb7-a226-9aa27b548580" class="">The goods between <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><msub><mi>Q</mi><mi>E</mi></msub></mrow><annotation encoding="application/x-tex">Q_E</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8777699999999999em;vertical-align:-0.19444em;"></span><span class="mord"><span class="mord mathnormal">Q</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:0.32833099999999993em;"><span style="top:-2.5500000000000003em;margin-left:0em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight" style="margin-right:0.05764em;">E</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.15em;"><span></span></span></span></span></span></span></span></span></span></span><span></span></span> and <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><msub><mi>Q</mi><mi>T</mi></msub></mrow><annotation encoding="application/x-tex">Q_T</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8777699999999999em;vertical-align:-0.19444em;"></span><span class="mord"><span class="mord mathnormal">Q</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:0.32833099999999993em;"><span style="top:-2.5500000000000003em;margin-left:0em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight" style="margin-right:0.13889em;">T</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.15em;"><span></span></span></span></span></span></span></span></span></span></span><span></span></span> are not sold, and are known as the deadweight loss. </p><p id="5c9a78be-b278-4be5-a772-fa516688ab99" class="">The size of the deadweight loss is determined by the price elasticities of supply and demand.</p><p id="2530de82-53c4-4146-b8f3-e666682cb7fa" class="">When supply is inelastic, it is harder for firms to leave the market when the tax reduces <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><msub><mi>P</mi><mi>S</mi></msub></mrow><annotation encoding="application/x-tex">P_S</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.83333em;vertical-align:-0.15em;"></span><span class="mord"><span class="mord mathnormal" style="margin-right:0.13889em;">P</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:0.32833099999999993em;"><span style="top:-2.5500000000000003em;margin-left:-0.13889em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight" style="margin-right:0.05764em;">S</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.15em;"><span></span></span></span></span></span></span></span></span></span></span><span></span></span>, and therefore the DWL is low. The more elastic the supply, the easier it is for firms to leave the market, and thus there is a higher change in <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>Q</mi></mrow><annotation encoding="application/x-tex">Q</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8777699999999999em;vertical-align:-0.19444em;"></span><span class="mord mathnormal">Q</span></span></span></span></span><span></span></span> and a higher DWL.</p><p id="f935062b-c189-42b8-9414-1549d25e1e08" class="">When the demand is inelastic, it's harder for consumers to leave the market when the tax raises <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><msub><mi>P</mi><mi>B</mi></msub></mrow><annotation encoding="application/x-tex">P_B</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.83333em;vertical-align:-0.15em;"></span><span class="mord"><span class="mord mathnormal" style="margin-right:0.13889em;">P</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:0.32833099999999993em;"><span style="top:-2.5500000000000003em;margin-left:-0.13889em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight" style="margin-right:0.05017em;">B</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.15em;"><span></span></span></span></span></span></span></span></span></span></span><span></span></span>. So, the tax only reduces <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>Q</mi></mrow><annotation encoding="application/x-tex">Q</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8777699999999999em;vertical-align:-0.19444em;"></span><span class="mord mathnormal">Q</span></span></span></span></span><span></span></span> a little, and the DWL is small. The more elastic the demand, the easier for buyers to leave the market, and thus there is a higher change in <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>Q</mi></mrow><annotation encoding="application/x-tex">Q</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8777699999999999em;vertical-align:-0.19444em;"></span><span class="mord mathnormal">Q</span></span></span></span></span><span></span></span> and a higher DWL.</p><h2 id="c4c5d712-6667-4d9b-9bbd-4ff5314a9e3e" class="">Depicted on a Graph</h2><div id="1d499de2-c0f2-47a6-a0b4-b631a1abab83" class="column-list"><div id="197660ec-dceb-44f0-a6c7-7ded0e5cd7b8" style="width:50%" class="column"><figure id="1a5956ca-60ee-4217-a51a-52aee2280d40" class="image"><a href="Unit%202%20Supply%20and%20Demand%2049cf04a95dd7439cb48e237f885334e1/Untitled%206.png"><img style="width:460px" src="Unit%202%20Supply%20and%20Demand%2049cf04a95dd7439cb48e237f885334e1/Untitled%206.png"/></a><figcaption>Market without a tax</figcaption></figure></div><div id="8af53882-82b1-4817-8e10-421de76926af" style="width:50%" class="column"><figure id="4a15c350-aeca-43e2-ad40-d1cb1aa48f74" class="image"><a href="Unit%202%20Supply%20and%20Demand%2049cf04a95dd7439cb48e237f885334e1/Untitled%207.png"><img style="width:504px" src="Unit%202%20Supply%20and%20Demand%2049cf04a95dd7439cb48e237f885334e1/Untitled%207.png"/></a><figcaption>Effect of a tax on the market</figcaption></figure></div></div><h1 id="75d613b0-743f-4a40-9b63-73018515deba" class="">2.9 - International Trade and Public Policy</h1><ul id="82e75892-5330-4cc7-a886-50ecaece6447" class="bulleted-list"><li style="list-style-type:disc"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><msub><mi>P</mi><mi>W</mi></msub></mrow><annotation encoding="application/x-tex">P_W</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.83333em;vertical-align:-0.15em;"></span><span class="mord"><span class="mord mathnormal" style="margin-right:0.13889em;">P</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:0.32833099999999993em;"><span style="top:-2.5500000000000003em;margin-left:-0.13889em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight" style="margin-right:0.13889em;">W</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.15em;"><span></span></span></span></span></span></span></span></span></span></span><span></span></span>= the <strong>world price</strong> of a good, the price that prevails in world markets. </li></ul><ul id="5627a0ab-399d-48f6-898f-656b8f9c9efb" class="bulleted-list"><li style="list-style-type:disc"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><msub><mi>P</mi><mi>D</mi></msub></mrow><annotation encoding="application/x-tex">P_D</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.83333em;vertical-align:-0.15em;"></span><span class="mord"><span class="mord mathnormal" style="margin-right:0.13889em;">P</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:0.32833099999999993em;"><span style="top:-2.5500000000000003em;margin-left:-0.13889em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight" style="margin-right:0.02778em;">D</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.15em;"><span></span></span></span></span></span></span></span></span></span></span><span></span></span> = domestic price without trade.</li></ul><ul id="9d25ede6-10bd-40b4-99b6-d545651701f0" class="bulleted-list"><li style="list-style-type:disc">If <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><msub><mi>P</mi><mi>D</mi></msub><mo><</mo><msub><mi>P</mi><mi>W</mi></msub></mrow><annotation encoding="application/x-tex">P_D \lt P_W</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.83333em;vertical-align:-0.15em;"></span><span class="mord"><span class="mord mathnormal" style="margin-right:0.13889em;">P</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:0.32833099999999993em;"><span style="top:-2.5500000000000003em;margin-left:-0.13889em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight" style="margin-right:0.02778em;">D</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.15em;"><span></span></span></span></span></span></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel"><</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:0.83333em;vertical-align:-0.15em;"></span><span class="mord"><span class="mord mathnormal" style="margin-right:0.13889em;">P</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:0.32833099999999993em;"><span style="top:-2.5500000000000003em;margin-left:-0.13889em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight" style="margin-right:0.13889em;">W</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.15em;"><span></span></span></span></span></span></span></span></span></span></span><span></span></span><ul id="e93889c6-f916-4804-915f-d9861a1424f6" class="bulleted-list"><li style="list-style-type:circle">country has a comparative advantage in the good</li></ul><ul id="92002945-60c0-4709-a2b8-020257e393c8" class="bulleted-list"><li style="list-style-type:circle">under free trade, country exports the good</li></ul></li></ul><ul id="8073b5d5-c74b-4eee-bafa-371b098c9962" class="bulleted-list"><li style="list-style-type:disc">If <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><msub><mi>P</mi><mi>D</mi></msub><mo>></mo><msub><mi>P</mi><mi>W</mi></msub></mrow><annotation encoding="application/x-tex">P_D \gt P_W</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.83333em;vertical-align:-0.15em;"></span><span class="mord"><span class="mord mathnormal" style="margin-right:0.13889em;">P</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:0.32833099999999993em;"><span style="top:-2.5500000000000003em;margin-left:-0.13889em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight" style="margin-right:0.02778em;">D</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.15em;"><span></span></span></span></span></span></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:0.83333em;vertical-align:-0.15em;"></span><span class="mord"><span class="mord mathnormal" style="margin-right:0.13889em;">P</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:0.32833099999999993em;"><span style="top:-2.5500000000000003em;margin-left:-0.13889em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight" style="margin-right:0.13889em;">W</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.15em;"><span></span></span></span></span></span></span></span></span></span></span><span></span></span><ul id="7f0ad4d8-7fd2-4804-944d-76d6f41c1dfe" class="bulleted-list"><li style="list-style-type:circle">country does not have a comparative advantage in the good</li></ul><ul id="79341aa3-4dce-441d-ab9e-158c70ef25ef" class="bulleted-list"><li style="list-style-type:circle">under free trade, the country will import the good</li></ul></li></ul><h2 id="d8fa4a18-c089-4c06-ab09-023777ee935a" class="">The Small Economy Assumption</h2><ul id="9c968104-6b4e-403e-bff3-a6b778f8f7e4" class="bulleted-list"><li style="list-style-type:disc">A small economy is a <strong>price taker</strong> in world markets: Its actions have no effect on <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><msub><mi>P</mi><mi>W</mi></msub></mrow><annotation encoding="application/x-tex">P_W</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.83333em;vertical-align:-0.15em;"></span><span class="mord"><span class="mord mathnormal" style="margin-right:0.13889em;">P</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:0.32833099999999993em;"><span style="top:-2.5500000000000003em;margin-left:-0.13889em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight" style="margin-right:0.13889em;">W</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.15em;"><span></span></span></span></span></span></span></span></span></span></span><span></span></span>.</li></ul><ul id="a9d7caf0-4fa2-45da-a527-8de7b3422d62" class="bulleted-list"><li style="list-style-type:disc">Not always true, but simplifies the analysis</li></ul><h2 id="5fd64d81-6a4a-4ec7-a726-2d6f02454813" class="">The Welfare Effects of Trade</h2><figure id="97e9c51b-850c-4e4d-99c3-33f715c8c3e2" class="image"><a href="Unit%202%20Supply%20and%20Demand%2049cf04a95dd7439cb48e237f885334e1/PXL_20211027_131243179.jpg"><img style="width:2052px" src="Unit%202%20Supply%20and%20Demand%2049cf04a95dd7439cb48e237f885334e1/PXL_20211027_131243179.jpg"/></a></figure><p id="c81454e0-476a-452c-8e0c-69f7bb822095" class="">When a good is imported or exported, trade creates winners and losers.</p><h2 id="0e78d822-5039-4492-b998-e30640f19ab3" class="">Other Benefits of International Trade</h2><ul id="d5a8bb59-58e7-4d9a-99f7-f04cd528ba07" class="bulleted-list"><li style="list-style-type:disc">Consumers enjoy an increased variety of goods</li></ul><ul id="e66d86cc-ba0d-4ac5-b558-37a1983056c1" class="bulleted-list"><li style="list-style-type:disc">Producers sell to a larger market and may achieve lower costs</li></ul><ul id="8df8c9f4-c4ca-425b-9fc1-0ba822960160" class="bulleted-list"><li style="list-style-type:disc">International competition may increase market power of local producers</li></ul><h2 id="8d4e3500-8a6c-4da3-b639-d4cb89e79a90" class="">Tariff: An Example of a Trade Restriction</h2><ul id="b069d5b3-3ce7-4e08-abcc-eabc3a802090" class="bulleted-list"><li style="list-style-type:disc">A <strong>tariff</strong> is a tax on imports.</li></ul><ul id="473c3fc0-68a2-4faf-801e-614aceae723d" class="bulleted-list"><li style="list-style-type:disc">Example: Cotton shirts<ul id="2fd29aa8-4969-4f41-b36a-62bce6b694af" class="bulleted-list"><li style="list-style-type:circle"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><msub><mi>P</mi><mi>W</mi></msub><mo>=</mo><mi mathvariant="normal">$</mi><mn>20</mn></mrow><annotation encoding="application/x-tex">P_W = \$20</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.83333em;vertical-align:-0.15em;"></span><span class="mord"><span class="mord mathnormal" style="margin-right:0.13889em;">P</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:0.32833099999999993em;"><span style="top:-2.5500000000000003em;margin-left:-0.13889em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight" style="margin-right:0.13889em;">W</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.15em;"><span></span></span></span></span></span></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">=</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:0.80556em;vertical-align:-0.05556em;"></span><span class="mord">$20</span></span></span></span></span><span></span></span></li></ul><ul id="61e4c05b-cc1b-4333-8628-3e0ad4409989" class="bulleted-list"><li style="list-style-type:circle">Tariff: <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>T</mi><mo>=</mo><mi mathvariant="normal">$</mi><mn>10</mn><mi mathvariant="normal">/</mi><mtext>shirt</mtext></mrow><annotation encoding="application/x-tex">T = \$10/\textrm{shirt}</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.13889em;">T</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">=</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:1em;vertical-align:-0.25em;"></span><span class="mord">$10/</span><span class="mord text"><span class="mord textrm">shirt</span></span></span></span></span></span><span></span></span></li></ul><ul id="83f8b04e-0eca-4dcc-8952-e56d1d99ebb1" class="bulleted-list"><li style="list-style-type:circle">Consumers must pay $30 for an imported shirt.</li></ul><ul id="0b57a1fe-6348-47f3-bf3a-94394a8debb2" class="bulleted-list"><li style="list-style-type:circle">Therefore, domestic producers can charge $30 per shirt.</li></ul></li></ul><ul id="dd0cd07f-eab9-4538-b860-420457396d83" class="bulleted-list"><li style="list-style-type:disc">In general, the price facing domestic buyers & sellers equals <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><msub><mi>P</mi><mi>W</mi></msub><mo>+</mo><mi>T</mi></mrow><annotation encoding="application/x-tex">P_W + T</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.83333em;vertical-align:-0.15em;"></span><span class="mord"><span class="mord mathnormal" style="margin-right:0.13889em;">P</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist" style="height:0.32833099999999993em;"><span style="top:-2.5500000000000003em;margin-left:-0.13889em;margin-right:0.05em;"><span class="pstrut" style="height:2.7em;"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight" style="margin-right:0.13889em;">W</span></span></span></span><span class="vlist-s"></span></span><span class="vlist-r"><span class="vlist" style="height:0.15em;"><span></span></span></span></span></span></span><span class="mspace" style="margin-right:0.2222222222222222em;"></span><span class="mbin">+</span><span class="mspace" style="margin-right:0.2222222222222222em;"></span></span><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord mathnormal" style="margin-right:0.13889em;">T</span></span></span></span></span><span></span></span>.</li></ul><h2 id="be1d15e9-9a38-4c15-9557-45ce5ce98981" class="">Effect of a Tariff on Supply and Demand</h2><figure id="08703e38-07f1-41de-b23c-c5da813f5a18" class="image"><a href="Unit%202%20Supply%20and%20Demand%2049cf04a95dd7439cb48e237f885334e1/Untitled%208.png"><img style="width:953px" src="Unit%202%20Supply%20and%20Demand%2049cf04a95dd7439cb48e237f885334e1/Untitled%208.png"/></a></figure><h2 id="c8f59b95-0509-4d6b-97b3-fb65ba3bbe30" class="">Arguments for Restricting Trade</h2><ul id="262f3f04-9ec6-463c-9aa4-16dbef9319b0" class="bulleted-list"><li style="list-style-type:disc">Trade destroys jobs in industries that compete with imports.<ul id="fdecdaa4-d4f3-4139-8854-a8dc906af606" class="bulleted-list"><li style="list-style-type:circle">Look at the data. Do rising imports cause rising unemployment? No.</li></ul><ul id="81acaafa-1784-4b17-bbc4-55352372e77a" class="bulleted-list"><li style="list-style-type:circle">Imports do not destroy jobs, only change which jobs are available.</li></ul></li></ul><ul id="964e6d5b-fce6-42a6-bd5c-5d47bf12a438" class="bulleted-list"><li style="list-style-type:disc">An industry vital to national security should be protected from foreign competition, to prevent dependence on imports.<ul id="8d5275af-e973-4499-a53c-d89f4517d85b" class="bulleted-list"><li style="list-style-type:circle">Producers may exaggerate their own importance to national security to get protections</li></ul></li></ul><ul id="1354e480-74f6-436d-9334-75b5a3bfd6cd" class="bulleted-list"><li style="list-style-type:disc">A new industry argues for temporary protection until it's mature and can compete with foreign firms<ul id="5b3f0a68-2f9f-46be-990b-fc5f258fec4e" class="bulleted-list"><li style="list-style-type:circle">This is dumb — Sincerely, Economists</li></ul></li></ul><ul id="0292e38f-7185-4fdb-9988-96ff0b7eeec9" class="bulleted-list"><li style="list-style-type:disc">Producers argue their competitors in another country have an unfair advantage<ul id="42709191-2cb3-4a49-b743-58b7d9cb6ff9" class="bulleted-list"><li style="list-style-type:circle">Ok perfect that sucks we're just gonna import and you suck go die — Economists</li></ul></li></ul><ul id="373576d8-2be5-40bf-9d14-1cab8f5a5138" class="bulleted-list"><li style="list-style-type:disc">Nation could use restricting trade to bargain with other nations<ul id="b65595ed-87a5-43dc-acc1-17edfd96a881" class="bulleted-list"><li style="list-style-type:circle">This is a bad idea, as it places the nation between a rock and a hard place if the other nation declines to act.</li></ul></li></ul><h2 id="0fcba75f-3b22-4e6a-b884-ae192e5f847e" class="">Trade Agreements</h2><ul id="92da6227-be16-4efe-80d8-2a101d91db1b" class="bulleted-list"><li style="list-style-type:disc">A country can liberalize trade with<ul id="ea14f59d-c626-4a3d-b9aa-7ab198ac6981" class="bulleted-list"><li style="list-style-type:circle">unilateral reductions in trade restrictions</li></ul><ul id="c255cd90-020a-452e-8b91-f84e9a06ddaf" class="bulleted-list"><li style="list-style-type:circle">multilateral agreements with other nations</li></ul></li></ul><ul id="32c84373-7bf8-402a-8f6c-687eea6d2cee" class="bulleted-list"><li style="list-style-type:disc">Examples of trade agreements:<ul id="af856ef1-76be-405b-96f9-e49868c27a78" class="bulleted-list"><li style="list-style-type:circle">North American Free Trade Agreement (NAFTA), 1993</li></ul><ul id="b174dfc6-f24a-4a09-8952-d43b956e9d9c" class="bulleted-list"><li style="list-style-type:circle">General Agreement on Tariffs and Trade (GATT), ongoing</li></ul></li></ul><p id="88db55d3-a738-4860-b3ad-6123a7698f68" class="">
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