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Microeconomics > 2nd Test > Flashcards

2nd Test Flashcards

1
Q

what is demand?

A
  • the want to purchase goods or services

- people must be willing and able to purchase a good or service

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2
Q

the law of demand states…

  • as the price of a good increases, the quantity demanded ______
  • as the price of a good decreases, the quantity demanded ______
A
  • decreases

- increases

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3
Q

what type of relationship is the law of demand?

A

inverse

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4
Q
  • what is the definition of demand?

* what is the definition of quantity demanded?

A
  • demand is simply the willingness and ability to buy something
  • quantity demanded is the # of units purchased at a specific price
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5
Q

what is the law of diminishing marginal utility?

A

as a person consumes additional units of a good, eventually the utility gained from each additional unit of the good decreases

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6
Q
  • the more utility (satisfaction) you receive from a good the…..
  • the less utility you receive from a good the…
A
  • higher the price people are willing to pay for it

- lower the price people are willing to pay for it

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7
Q

NOTE

A

when you talk about price you talk about quantity

when you talk about quantity you talk about price

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8
Q

when demand increases the demand line shifts to the (right/left)

A

right!

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9
Q

when demand decreases the demand line shifts to the (right/left)

A

left!

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10
Q

What six factors shift the demand curve?

A
  1. Income
  2. Substitutes
  3. Complements
  4. Preferences
  5. Number of Buyers
  6. Expectations
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11
Q

what is a normal good?

A

nice things such as steak or a new car

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12
Q

what is an inferior good?

A

generic things or things that you settle for because they are cheap such as Ramen noodles, hot dogs

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13
Q

what is a neutral good?

A

necessary things like medicine

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14
Q

how can income affect the amount of normal, inferior, and neutral goods?

A
  • the demand for normal goods rises as income rises and falls as income falls
  • the demand for inferior goods rises as income falls and falls as income rises
  • the demand for neutral goods remain the same as income rises and falls
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15
Q

why is demand curve downward sloping?

A
  • income effect- if a products price falls, the purchasing power of a consumer will increase, and therefore, there will be greater quantity demanded at lower prices; the inverse is also true
  • substitution effect- if the product price is lower, consumers will shift from purchasing a substitute to buying more of this particular product, therefore, the quantity demanded is higher at lower prices.
  • diminishing Marginal Utility- the more additional units a consumer buys of a good, the less marginal utility they receive from it. So to make them buy more of what they are already buying, you have to lower the price
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16
Q

when will the demand line shift to the left?

A
  • when talking about inferior goods = income rises
  • when talking about normal goods = income falls
  • when preferences fall for the item
  • when talking about a compliment = price rises
  • when talking about a substitute= price falls
  • when number of buyers fall
  • when expect future prices to fall
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17
Q

when will the demand line shift to the right?

A
  • when talking about inferior goods = income falls
  • when talking about normal goods = income rises
  • when preferences rise for the item
  • when talking about a compliment = price falls
  • when talking about a substitute= price rises
  • when number of buyers rise
  • when expect future prices to rise
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18
Q

what is supply?

A

the willingness and ability to produce something at a given range of prices

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19
Q

what is the law of supply?

A
  • as price goes up…quantity supplied goes up

* as price goes down…quantity supplied goes down

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20
Q

what are the non price determinants that shift the supply line?

A
  1. cost of inputs (price of labor,etc)
  2. Productivity (efficiency is good)
  3. Technology (new machines for example)
  4. Taxes (taxes go up, supply goes down)
  5. Subsidies ($ encourages or protects an industry)
  6. Expectations (expect price to go up hold product, decrease supply)
  7. government regulations (strict= produce less)
  8. number of sellers = (more sellers= more supply)
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21
Q

Supply line shifts to left when??

A
  • cost of production rises
  • technology falls or fault in tech
  • subsidies taken away or lowered
  • having a quota
  • number of sellers falls
  • weather is bad or causes harm
  • increase government regulation
  • future prices expected to rise
  • price rises of a production alternative
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22
Q

supply line shifts to the right when??

A
  • cost of production falls
  • technology rises
  • subsidies increases or started
  • not having a quota
  • number of sellers falls
  • weather is bad or causes harm
  • increase government regulation
  • future prices expected to rise
  • price rises of a production alternative
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23
Q

to be effective a price ceiling must be _____ equilibrium

A

below

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24
Q

to be effective a price floor must be ____ equilibrium

A

above

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25
Q

what is a price ceiling?

A

maximum legal price a seller can charge for a product…goal is to make things affordable for people

26
Q

what is a price floor?

A

minimum legal price a seller can sell a product…goal is to keep price high by keeping price from falling to equilibrium

27
Q

what is allocatively efficienct

A

society is properly using their resources

28
Q

to be efficient what must a market do with CS and PS

A

maximize consumer and producer surplus

29
Q

every transaction must have what two things?

A

buyer and seller

30
Q

what is the elasticity of demand?

A
  • measurement of consumers’ responsiveness to a change in price
  • what will happen if the price increases? how much will it effect quantity demanded?
31
Q

what is inelastic demand?

A

quantity demanded is insensitive to a change in price.

  • if price increases, quantity demanded will fall a little (but not that much)
  • if price decreases, quantity demanded increases a little (but not that much)
  • PEOPLE WILL CONTINUE TO BUY IT
32
Q

what makes inelastic goods be inelastic goods?

A
  • there are few substitutes
  • it is a necessity
  • small portion of ones income
  • required now, rather than later
  • elasticity coefficient is less than 1
33
Q

what is elastic demand?

A
  • quantity is sensitive to a change in price
  • if price increases, quantity demanded will fall A LOT
  • if price decreases, quantity demanded increases A LOT
  • in other words the amount people buy is sensitive to price change
34
Q

what makes an elastic good an elastic good?

A
  • there are many substitutes
  • it is not a necessity but a luxury
  • large portion of income
  • plenty of time to decide to buy it or not
  • elasticity coefficient is greater than 1
35
Q

what is perfectly inelastic? and what is the coefficient?

A
  • when people will buy whatever the price

* coefficient is 0

36
Q

what is unit elastic? and what is the coefficient?

A

*the quantity purchased is completely sensitive to price change

37
Q

what is total revenue?

A

the total receipts of a firm from the sale of some given quantity’s of a product

38
Q

how do you calculate total revenue?

A

price x quantity

39
Q

when prices increases which causes TR to decrease this is ______
*when price decreases which causes TR to increase this is also ______

A

Elastic Demand

40
Q
  • when price increases which causes TR to increase this is ______
  • When price decreases which causes TR to decrease as well is also called ______
A

Inelastic demand

41
Q

if price changes and TR stays the unchanged this is ______

A

unit elastic

42
Q

if the coefficient of Ed

A

inelastic

43
Q

if the coefficient of Ed > 1 then it is….

A

elastic

44
Q

how does a relatively and perfectly inelastic graph look like

A
  • relatively looks like it wants to become an I

* perfectly looks like it is an I

45
Q

how does relatively and perfectly elastic look like?

A
  • relatively elastic looks like it wants to become a horizontal line
  • a perfectly elastic graph looks like horizontal line
46
Q

what is the income elasticity equation?

A

% change in QD / % change in income

47
Q

what does it mean if the outcome of the income elasticity equation is positive or negative?

A
  • positive = more normal goods

* negative = inferior goods

48
Q

what is the cross-price elasticity equation?

A

% change in QD of x / % change in price of y

49
Q

what does it mean if the outcome of the cross price elasticity equation is positive or negative?

A
  • positive= substitutes

* negative= complements

50
Q

what is the demand elasticity equation?

A

% change in QD / % change in price

51
Q

if the coefficient is greater than 1 what does it mean? less than 1? equals to 1?

A
  • Elastic
  • Inelastic
  • unit elastic
52
Q

what is the supply elasticity equation?

A

% change in QS / % change in price

53
Q

if the coefficient is greater than 1 what does it mean? less than 1? equals to 1?

A
  • Elastic
  • Inelastic
  • unit elastic
54
Q

why are excise taxes imposed?

A
  • discourage consumption
  • re distributive goals
  • reduce negative externality (externality= the cost or benefit that affects a party who did not choose to incur that cost or benefit)
55
Q

efficiency loss is also known as….

A

dead weight loss

56
Q

which has a smaller efficiency loss? inelastic or elastic demand?

A

inelastic

57
Q

how do you calculate marginal revenue?

A

change in TR / change in Quantity

58
Q

when marginal revenue crosses _____ this is when TR is the maximum (all seen on a graph)

A

y=0

59
Q

what is consumer surplus?

A

the total amount that consumers are willing and able to pay for a good or service (indicated by the demand curve) and the total amount that they actually do pay (i.e. the market price)

60
Q

what is producer surplus

A

the difference between the amount the producer is willing to supply goods for and the actual amount received by him when he makes the trade.

Microeconomics (15 decks)

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