Friday, November 11, 2011

Class Summary 11/11

Elasticity and Total Revenues

Total Revenues = P x Q, when P increases, Q decreases; and when P decreases, Q increases.
So if the change in total revenue and the change in price are in opposite directions... then?
Looking at a graphic example we saw that at Point B prices are higher and less customers buy, therefore there was a decrease of $180. You added $120 by increasing your price of a burrito by $30 you multiply $30 by 4, the amount of customers who still buy your burritos, to create your increase of $120. But you also need to look at your loss of 6 customers and each of their $50 that are no longer being paid. Therefore $50 multiplied by 6 is $300. This accounts for the decrease of $180.

We also talked about how elastic goods that we "need" are. When you look at the demand curve would it be perfectly "inelastic"? No, that is saying that there are NO substitutes for any good that is necessary. We need to look at both wants & ability when you think about demand curves. "People will do anything for healthcare." This statement is completely untrue. If we were so desperate to save our own lives at any cost then we would be exercising everyday and never take risks but we do make trade-offs.

The whole concept of cost is derived from scarcity. When you look at a cost you have to think of an action that is attributed to a cost, and to whom? The whole point of suppliers costs are opportunity costs.

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