Chapter 3-5 exam Flashcards
price ceiling set the _____ legal process a seller may charge for a product or service
when p* is ____
consumer is complaining
maximum
too high
a price floor is a _____ price fixed by the government
when p* is too _____
producer is complaining
minimum
low
when demand impact is greater than supply impact
an increase in price
decrease in quantity
when demand is equal to supply impact
an increase in price
unchanged for quantity
when demand impact is less than supply
increase in price
decrease in demand
a products ____ elasticity of demand- the _____ or sensitivity of consumer to the price change
price
responsiveness
the demand for a product is relatively elastic or ____ - consumers are ___ responsive to price changes
- elastic
- very
the demand for a product is relatively inelastic or ____ - consumers _____ respond much to price changes
- inelastic
2.do not
the price-elasticity ______ and formula
coefficient
formula %quantity demanded vs % price
ie. -2% / 10 = 0.2
-20% / 10 = 2
more than 1
elastic
less than 1
inelastic
Ed is used to measure the consumers ____ to price change
responsiveness
due to the property law of demand, Ed will always be a ____ number
negative
equal to one
unit
Ed= 0
perfectly inelastic
Ed= infinity
perfectly elastic
fill in blank: 1.2 demand is relatively elastic it means that a 10% increase will cause the product to fall
my
Solve it!!!!
12%
1.2 * 10 = 12
Midpoint formula
(Q2 - Q1)/ (Q2+ Q1)/2)/// (P2-P1)/(P2+P1)/2
ex. (2-3)/(2+3)/2//(5-4)/(5+4)/2 = 1.8 = elastic
demand is more price elastic toward the ___ price range than toward the __ price range
high
10%
elasticity vs slope- a straight line of the demand curve, the slope is ____ but the elasticity ____
- constant
- varies
the total revenue test—
(TR= P*Q)
elastic demand- if demand is elastic a price ____ will increase total revenue
decrease
inelastic demand- if demand is inelastic a price ___ will increase total revenue
increase
unit elasticity- an increase increase or decrease in TR remains unchanged
ie. 10/10 = 1
test example: last year they charged $4.00 (p1) and parked 1,000 cars (q1) the. next year they raise it to $5.00(p2) and 850 (q2)
solve
1) TR= p1q1= 41,000=4,000
= p2q2= 5850=4,250.
TR ^ and P^ so it must be true
Ed= 850-1000/850+1000/2 /// 5-4/5+4/2= 0.73 inelastic TR ^
less substitutes =
less elastic
the steeper the graph the more—-
inelastic
the flatter the graph the more——-
elastic
high price range =
lower prices range =
more elastic
less elastic
the more substibility a consumer has the more ___ they become
elastic
more expensive item compared to income
more elastic
more luxury goods and time
more elastic
necessities
inelastic
large crop yield demand = 0.2 to 0.24
the graph is steep == ???
inelastic
a products ____ elasticity of suply- the responsiveness or sensitivity of producers to a price change
price
the price-elasticity - ____ of supply and formula
coefficient
supply only determinate is
time
immediate market period
0
short run
es<1
inelastic
the long run
Es> 1
more elastic
cross price
how sensitive consumer purchases one product to a related product
substitute goods, complementary vs independent goods
ie. pepsi = 30/10=3
sprite=5/10=0.5
pepsi is closer
the higher the Exy the closer the substitute
Exy> 0 —> x and y are ____
substitutes
Exy=0—-> x and y are
unrelated
Exy < 0 —> x and y are
complements
what’s why the elasticity is always measured in terms of
percentages
but all else equal, a linear demand schedule becomes more inelastic the more ____ it’s slope
vertical
since the demand for natural gas could be usually ____ which would be easy to depict as unusually _____
inelastic
vertical
by the way eliminate opportunities from market manipulation so in the long run the market can be pretty ____ at giving us what we wants economics works in the ___ run
effective
long
decrease in price = ___ in quantity
increase
increase in price = ___ in quantity
decrease
greater than 0 =
substitute
less than 0 =
complement
= to 0 =
unrelated
utility is a ___ - satisfying power; utility is _____
want
subjective
Total utility- (TU)- the total amount of ___ or pleasure a person derives from consuming some specific quantity of a good or service
utility
Marginal utility (MU)- the ___ satisfaction a consumer realizes from an ___ unit of a product
extra
additional
TU ^ at a ____ rate
deceasing/ ie. diminishing mu
when MU= 0, TU is at its ___
maximum
how costumers allocate/ spend their money among many goods and services
allocate
consumption choice made by typical consumer:
___ behavior ( get the most for their money/ to maximize utility)
____ ( in part preferences are based on the realization of marginal utility by the consumer)
____ constraint (budget limitation at a point in time)
—— ( scarcity vs.unlimited wants —-> price tag for every good)
rational
preferences
budget
price
utility maximizing rule—
MUa/Pa = MUb/Pb
too few =
larger
too many =
smaller
____ MU/P reduce the budget
higher
____ MU/P reaches max
lower
utility is ___ to measure
difficult
utility-maximizing rule- to maximize satisfaction the consumer should allocate all their money income so that the _____ spent on each product yields the same amount of marginal utility
last dollar
that is the consumer will maximize her satisfaction when she allocates her money income so that the _____ spent on product A, the last on product, and so on yield the same amount of _____
last dollar
marginal utility
from an accounting standpoint, cost refers to direct or out of pocket or ____ costs
explicit
accounting profits (lie) = TR- ____ costs
explicit
economic costs = explicit costs + ___ costs
implicit
if you find that a business owner is making zero economic profit, it doesn’t mean that they earn ____ it means that the revenue are enough to cover all your costs even the value of gneiss owners ____
nothing
time
