EconomicsLesson 1 of 5

Microeconomics: Markets, Elasticity & Market Structures

Formulas

Price Elasticity of Demand

ε_D=(% ΔQ) / (% ΔP)=(dQ/dP)×(P/Q)

|ε_D| < 1 = inelastic; |ε_D| > 1 = elastic; |ε_D| = 1 = unit elastic.

Lerner Index

L=(P−MC) / P=1 / |ε_D|

Measures monopoly power. L=0 in perfect competition; L=1 in pure monopoly.

Part 1 of 5

Supply, Demand & Price Controls

The market clears where quantity supplied equals quantity demanded. Government controls disrupt this:

Price ceiling (below equilibrium) → shortage. Suppliers produce less than consumers want.
Price floor (above equilibrium) → surplus. More is supplied than demanded.

Worked example

1Rent control set at €800/month when the equilibrium rent is €1,200/month.
2Ceiling is binding → landlords supply fewer flats, tenants demand more → shortage.
3If rent control were set at €1,500/month, it would be non-binding and have no effect.

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Consumer Theory & Utility Maximization