Economic profit is zero vs Accounting profit positive ??

Why economists think that profit is zero in the competitive market ??? Why ???

Costs in the short and in the long run

The shape of the long run average-total-cost curve conveys important information about the production processes that a firm has available for manufacturing a good. When long run average total cost declines as output increases, there are said to be economies of scale. When long run average total cost rises as output increase, there are said to be diseconomies of scale. When long run average total cost does not vary with the level of output, there are said to be constant returns to scale.

The income elasticity of demand (IED)

IED measures how the quantity demanded changes as consumer income changes.
Compute;
IED=%change in quantity demanded/%change in income

Happy happy !!!!
But if income up then price up .

The elasticity of demand

To measure how much consumers respond to changes in these variables, economists use the concept of elasticity.

The price elasticity of demand(PED);
Why ??
1. Availibility of close substitutes
2.Necessities versus luxuries
3.Definition of the market
4.Time horizon

Computing the price elasticity of demand;
PED=(%change in quantity demanded)/(%change in price)

Example;

Suppose that 20 percent increase in the price of apple causes the amount you buy fall to 40 percent. Compute as;
PED=40/20=2

Here we know that PED means how much quantity responds to price.

PED>1 is elastic
PED<1 is inelastic (not mean negative)
PED=1 unit elasticity
PED=0 perfectly inelastic



Key to PED; how much, elastic, inelastic

A note- shift or move ?

Have you confuse about a change in d and s curves?. Here are a tips;
A.If demand changes and supply constant thus d curves shifts but s curves move. We say, change in demand and change in the quantity supplied.
B.If supply changes and demand constant thus s curves shifts but d curves move. We say, change in supply and change in the quantity demanded.

In case A, consumers' desire to buy changes but producer`s desire to sell not changes. Vise versa in case B.

Key to open the equilibrium door ; quantity supply, quantity demand, change in demand, change in supply, change in quantity supply, change in quantity demand, movements, shifts

Shifts in demand curve;
Shifts is about increase or decrease in demand curve.
Why ????
1. Income
2.Price of related goods
3.Tastes
4.Expectations
5.Number of buyers

Movement in demand curve
1. Price

Shifts in supply curve;
Why?????
1. Input prices
2.Technology
3.Expectations
4.Number of sellers

Movement in demand curve
1.Price

See Mankiw (2007)- Principles of microeconomics

Equlibrium- three steps to analyzing changes

1. Decide whether the event shifts the supply or demand curve
2. Decide in which direction the curve shifts.
3. Use the supply-and-demand diagram to see how the shift changes the equilibrium price and quantity.