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