AGRICULTURAL ECONOMICS 422

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AGRICULTURAL ECONOMICS 422

• Land Economics
• Section 7

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PRICE
D 1
P 1
QUANTITY
Q 1
Demand Curve
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CHANGE IN DEMAND
PRICE
D 2
D 1
P 1
Q 1
QUANTITY
Q 2
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Nonprice Demand Determinants

• Income
• Prices of related goods
• Tastes
• Population

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CHANGE IN QUANTITY DEMANDED
PRICE
P 1
D1
P 2
Q 1
QUANTITY
Q 2
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Elasticity of Demand

• Percentage change in quanitiy
• Percentage change in price
• dq/q divided by dp/p

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ELASTICITY ALONG A DEMAND CURVE
PRICE
elastic
unitary elasticity
inelastic
45 degrees
QUANTITY
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DEGREE OF ELASTICITY(Absolute Values)

• E gt 1 Elastic (large quantity response)
• E 1 Unitary (Proportionate quantity response)
• E lt 1 Inelastic (small quantity response)

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Elasticity of Demand

• Elasticity changes along a demand schedule
• Elastic demand
• price increase increases revenue
• domain of monopolist

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MONOPOLY AND ELASTICITY
PRICE
AR p a - bq R aq-bq2 MR a - 2bq
MR
AR
QUANTITY
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MONOPOLIST EQUILIBRIUM

• MC MR
• MC Must Be Greater Than Zero
• Therefore Monopolist Operates in Elastic Portion
  of Demand

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PRICE ELASTICITY OF DEMAND
PRICE
Which is more elastic D1 or D2?
P 1
D1
D 2
P 2
Q 1
Q 2
Q 1
Q 2
QUANTITY
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What Kind of Demand?
PRICE
Elasticity?
D 1
P 1
QUANTITY