All of Micro Test Flashcards
This is all needed to memorize in microeconomics
What is the Law of Demand?
There is a negative relationship between the price of a good and the quantity demanded.
What are the non-price determinants of demand?
Income, Tastes and Preferences, Future price expectations, Price of substitutes and compliments, and number of consumers.
Normal vs. Inferior
A good where the demand increase with income level vs. a good where the demand decreases with income level
Movement on vs. of the demand curve
When the price of a good changes vs. changes to non-price determinants
What is the law of supply?
There is a positive relationship between quantity of good supplied and its price.
How to calculate the market supply?
Add the supply of every producer in the market.
What are the non-price determinants of supply?
- Changes in costs of factors of production
- Price of related goods
- Indirect taxes and subsidies (+ tax = less supply [supply costs go up thus less supply availble])
- Future Price Expectations (withhold supply)
- Changes in Technology
- Number of Firms
What are the factors of production?
Land Labor Capital and Entrepreneurship
Movements On and Of The Supply Curve
Changes in price = on, Changes in NPD of Supplies = of
What is a shortage?
Excess Demand
What is a surplus?
Excess Supply
What is the equation for PED?
%∆Q/%∆P
What are the ranges for PED
PED>1 (Price Elastic), 0<PED<1 (Price Inelastic),
What are the determinants of PED?
- Number of substitutes (More sub = more elastic)
- Luxury (Elastic) vs. Necessity (Inelastic)
- Length of Time (more time = more elastic)
- Proportion of Income (Larger Income = more elastic)
What is YED?
Change in demand based on change in income
What is the equation for YED?
%∆Q/%∆Y
What are income elastic vs. income inelastic goods?
Income elastic goods are luxuries, e.g cars. When the income goes up the demand goes up. Income inelastic goods are necessities such as food. When the income goes up the demand hardly changes.
What is the value range for YED?
YED < 1 the good is a necessity (inelastic)
YED > 1 this is a luxury (elastic)
What does a YED less than 0 indicate
Inferior Good
What is the formula for PES?
%∆Q(s)/%∆P
What is the range for PES?
PES < 1 = Inelastic
PES = 1 = unit elastic
PES > 1 = elastic
What are the determinants of PES?
- Time (more time to adjust resources, more elastic)
- Mobility of Factors of Production (how fast a firm can change factors of production more speed is more elastic
- Capacity [e.g off hours] (more unused capacity = more elastic)
- Ability to store stock (more stock = more elastic)
- Cost to produce more output (low cost = more elastic)
Why might the government intervene in the market?
- Earn Government Revenue
- Support firms
- Support low income households
- Influence Level of Production
- Influence the Level of consumption
- Correct market failure
- Promote Equity
How does the government intervene in the market?
- Price Ceilings and Floors
- Indirect taxes and subsidies
- Direct provision of services
- Command and control: regulation and legislation
What are Merit Goods?
Goods that are desirable to consume but are underproduced
What are characteristics of Common Pool resources
Rivalrous but non-excludable.
What is the marginal benefit?
The benefit of consuming one more unit of a good
How does the government control externalities?
- Indirect Taxes
- Carbon Taxes
- Legislation and regulation
- Education (creating awareness)
- Tradable permits
- International agreements
- Collective self-governance (group of ppl working)
- Subsidies
- Government Provision
What are the characteristics of public goods?
- Non-rivalrous, excludable
- Free-rider problem (enjoy without paying)
What is government intervention in response to public goods?
Direct provision: gov. directly controlling
Contracting out to private sector: dumping work to a private company.
What are limitations to government intervention to fix externalities
Cons
1. Its hard to measure externalities
2. may or may not be effective
3. consequences for stakeholders
4. sometimes hard to cooperate internationally
Pros
1. importance international cooperation
2. Global nature of sustainability and environmental issues
Draw a diagram that shows market equilibrium with the excess and surpluses. Then add the producer and community surpluses.
Draw
Draw all forms of PED on the demand curve.
Draw
Draw the Engel curve for a good showing inelastic, elastic and inferior goods.
Draw
Draw an elastic and inelastic supply and demand
Draw
Show the effects (before and after) of a price ceiling, price floor, indirect tax, and subsidy on a diagram
Draw
Draw all the externality diagrams.
Trick:
1. Production externalities: supply splits into 2, Consumption Externalities: demand splits into 2
2. Negative = Qm > Qopt (too much of a bad thing)
2. Positive = Qm < Qopt (too little of a good thing)
3. Triangle that points to Qpot and is between the two curves is the WELFARE LOSS
4. MSC and MSB intersection is opt
