AP Econ Micro Chapter 1 Flashcards
What is Welfare Economics?
The study of how the allocation of resources affects economic well-being.
Equilibrium in the market results what?
Maximum benefits, and therefore maximizes total welfare for both consumers and the producers of the product.
Consumer Surplus measures what?
Economic welfare from the buyer’s side.
Producer Surplus measures what?
Economic welfare from the seller’s side.
Producer Surplus is…
The amount the seller is paid minus the seller’s cost.
The area below the demand curve and above the price is what?
measures the consumer surplus in the market.
The area above the supply curve and below the price is what?
measures the producer surplus in the market.
What is a negative externality?
When the impact on a bystander is adverse. Such as exhaust, second hand smoke, loud pets… etc.
What is a positive externality?
When the impact on a bystander is beneficial. Such as immunization, new technologies, or restored buildings.
Negative externalities lead the market to produce _______ quantities than is socially desired.
Larger
Positive externalities lead the market to produce _______ quantities than is socially desired.
Smaller
The intersection of the demand curve and ____-_____ curve determine the socially optimal output level.
Social-cost
What is the equation for price elasticity of demand?
Price elasticity of D = PΔ in quantity D / %Δ in price
What is the Midpoint formula and what does it find?
(Q2-Q1)/(Q2+Q1)/2 over (P2-P1)/(P2+P1)/2
The demand elasticity
How do you calculate total revenue?
Total Revenue = Price X Quantity
What are the characteristics of an inelastic quantity demanded?
Does not respond strongly to price changes.
Price elasticity is less than 1
What are the characteristics of an elastic quantity demanded?
Does respond strongly to price changes.
Price elasticity is more than 1
In respect the supply elasticity, when is it more elastic?
In the Long-run
What is the price elasticity of supply formula?
Price elasticity of supply = PΔ in quantity supplied/%Δ in P
Necessities tend to be income _____ while luxury or substitute goods tend to be more _____.
Inelastic, Elastic
Consumer Surplus =
Producer Surplus =
Total Surplus =
Total Surplus =
Value to buyers - amount paid by buyers
Amount received by sellers - cost of sellers
Consumer surplus + Producer surplus
Value of buyers - cost to sellers
