Microeconomics, Chp 6

Lagrange: 50=cost of K and L; 15 output
z=50k+50L+λ(15-K^.5L^.5)
'z/'K=50-.5K^-.5L^.5=0
'z/'L=50-.5K^.5L^-.5=0
'z/' λ=15-K^.5L^.5=0

D'Q/d'P*(P/Q)
Q=400-4P, price 10, q 360
E=(-4)(10/360)

%ΔQ/%ΔP = [q1-q2/q1+q2/2]/[p1-p2/p1+p2/2

Where e=1
Note how elasticity changes along demand curve.

a state of stability in consumer purchasing patterns in which the individual has maximized her utility.

ex.Cokes and hot dogs

The sum of all the quantities individuals are willing to buy at each and every price.

A measure of the responsiveness of consumers, in terms of the quantity purchased, to a change in price, everything else held constant.

Elastic=sensitive consumer response to price chance
e>1

inelastic=insensitive consumer response to price change
e<1

The ratio of the percentage change in Quantity demanded to the percentage change in Price.

%ΔQ/%ΔP / ΔP/Initial P

A good with perfect substitutes, such as a wheat farmer. Demand curve is horizontal line. The elasticity coefficient is infinite.

Any good or service for which demand falls with an increase in income and rises with a decrease in income.

Two products are generally considered substitutes if the demand for one goes up when the price of the other rises.

Goods consumed jointly, like oil and oil filters of DVDs and DVD players.

A good in which consumption today affects consumption in a future time period (ex. alcohol, cigarettes)

A product or service whose value to the consumers depends intrinsically on how many other people buy the good. (ex. phones, faxes, software)

lower current prices in order to stimulate future sales. Only true as long as the producers rights to exploit future profits are not threatened.

oppose excise taxes entirely because of the elastic nature of their long run demands. They may be able to pass along a major share of the tax in the short run, but will not be able to do so in the long run.

Interconnectedness of demands

Usually a good becomes more valuable as it becomes scarcer. With networked goods, the goods increase in value as the good becomes more widespread.

Demand will increase as more people own networked good.

Ex. Demand for phones will rise with more phone ownership. Some of the benefits of phone ownership can be "external" to the buyers: Each person who buys a phone increases the opportunities to call for those who already own phones.

The point at which growth in the market for the operating system will take on a life of its own, growing at a faster pace because it _has_ grown at a faster pace. People will buy the operating system because everyone else is using it. After the 'tipping point' firm's eventual market dominance and monopoly is practically assured.

ex. apple v Microsoft late 80s, early 90s