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GPS > 401 Midterm > Flashcards

401 Midterm Flashcards

1
Q

What is cross-price elasticity of demand?

A

Measures how the quantity demanded of one good responds to a change in the price of another good, indicating whether goods are substitutes or complements.

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2
Q

What is marginal revenue?

A

The additional revenue generated from selling one more unit of a good or service.

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3
Q

What is the marginal revenue product of labor?

A

The additional revenue generated from employing one more unit of labor, calculated as the marginal product of labor multiplied by the marginal revenue.

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4
Q

What is the marginal product of labor?

A

The additional output produced by employing one more unit of labor.

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5
Q

What kind of elasticity is the following: Ep = 0

A

Perfectly inelastic

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6
Q

What kind of elasticity is the following: 0 > Ep > -1

A

Inelastic (e.g., gasoline)

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7
Q

What kind of elasticity is the following: Ep < -1

A

Elastic (e.g., recreation)

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8
Q

What kind of elasticity is the following: Ep = -infinity

A

Perfectly elastic

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9
Q

What kind of elasticity is the following: Ep > 0

A

Veblen Good (luxuries that show status and are demanded due to the price) or a Giffen Good (where inferior quality means demand rises with an increase in price for other goods)

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10
Q

What is the difference between a Veblen good and a Giffen good?

A

Veblens are luxury goods, Giffens are inferior.

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11
Q

What kind of good has Ey > 0?

A

A normal good

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12
Q

What kind of good has Ey < 0?

A

Inferior goods

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13
Q

What kind of good has 1 > Ey > 0?

A

Necessities

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14
Q

What kind of good has Ey > 1?

A

Luxury goods

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15
Q

What kind of good has Epo > 0? (CTK)

A

Substitute goods

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16
Q

What kind of good has Epo < 0?

A

Complements

17
Q

If demand is inelastic, what should firms do to their prices?

A

Firms should always raise their prices.

18
Q

Markup equation and what it means

A

% markup = P - MC / P = -1/Ep The MC side calculates the current markup, while the Ep side calculates the optimal markup. Note: only use the markup equation when demand is elastic.

19
Q

If the demand for a good is price-elastic, a cut in price will what?
What is the equation that backs this up (MR related to Ep)

A

Lead to an increase in quantity demanded and an increase in the firm’s revenue, this is because when a good is price elastic MR is greater than 0

MR = P(1+1/Ep)

20
Q

A good that has highly elastic demand is most likely to

A

Have a large number of substitutes

21
Q

A firm will maximize profits and revenues at the same price when

A

The marginal cost is negligible or zero

22
Q
A

GPS (5 decks)

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