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SAVINGS DEPOSITS: Accounts maintained by banks, savings and loan associations, credit unions, and mutual savings banks that pay interest but can not be used directly as money. These accounts, also termed transactions deposits, let customers set aside a portion of their liquid assets that COULD be used to make purchases. But to make those purchases, savings account balances must be transferred to checkable deposits or currency. However, this transference is easy enough that savings accounts are often termed near money. Savings accounts, as such constitute a sizeable portion of the M2 monetary aggregate.

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Lesson 11: Elasticity Basics | Unit 3: Measurement Page: 14 of 25

Topic: Doing The Numbers: Midpoint <=PAGE BACK | PAGE NEXT=>

  • Our task is to calculate the price elasticity of demand using the midpoint formula.

    midpoint
    elasticity
    =(Q2 - Q1)
    (Q2 + Q1)/2
    ÷(P2 - P1)
    (P2 + P1)/2

  • The values for this formula are P1 = $2.49, Q1 = 5,447 tacos, P2 = $1.99, Q2 = 6,608 tacos.
    midpoint
    elasticity
    =0.19 ÷ - 0.22=- 0.86

  • This value - 0.86 indicates that the a one percent decline in the price of Tacos results in a 0.86 percent increase in quantity demanded.

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INCREASING RETURNS TO SCALE

A given proportional change in all resources in the long run results in a proportional greater change in production. Increasing returns to scale exists if a firm increases ALL resources--labor, capital, and other inputs--by a given proportion (say 10 percent) and output increases by more than this proportion (that is more than 10 percent). This is one of three returns to scale. The other two are decreasing returns to scale and constant returns to scale.

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