Chapter 3 Micro Economic Review

Question 1

Price elasticity

Answer 1

Price elasticity is calculated by dividing the change in quantity demanded of a good or service by the change in price of a goods or service. If the resulting number is greater than 1, it is elastic if it is less than 1 it is in elastic if it equals one it is unitary elastic

Question 2

Elastic

Answer 2

When the price elasticity is greater then 1 and the consumer is more concerned about the price then with the goods or services themselves

Question 3

Inelastic

Answer 3

When the price elasticity is less than one, and consumers demonstrate a greater concern for the goods or services rather than the price

Question 4

Total revenue

Answer 4

Total revenue is defined as price multiplied by quantity

TR = P x Q

Question 5

Cross elasticity

Answer 5

Cross elasticity is defined by the formula E/ab = The percentage of change in the quantity of goods or service a divided by the change of price in goods or service B

Question 6

Income elasticity

Answer 6

Income elasticity is defined by the formula E/income = The percentage of change in the quantity demanded divided by the change in income. If the outcome is positive then an increase in income has resulted in an increase in the quality demanded. If the outcome is negative then a decrease in income has increased the purchase of the goods or service

Question 7

Price elasticity of supply

Answer 7

Price elasticity of supply is represented by the formula E/s = The percentage of change in the quantity of goods or services divided by the change of the price in goods or service.

Question 8

Utility maximization

Answer 8

The formula for utility maximization is the marginal unity of product X divided by the price of X equals the marginal unity of product Y divided by the price of Y

Question 9

Producer behavior

Answer 9

Producer behavior is governed by self interest. Producers seek maximum profit as the primary goal

Question 10

Explicit costs

Answer 10

These are payments made to input resource suppliers

Question 11

Implicit costs

Answer 11

The lost opportunity of entrepreneurial talent and capital resources that were applied elsewhere

Question 12

Short run

Answer 12

Short run is the time. During which the plant the passenger produce is said to be fixed or unchangeable

Question 13

Long run

Answer 13

Longrun is the time period during which plant capacity to produce is said to be changeable