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APEC 1101 > Chapter 6 > Flashcards

Chapter 6 Flashcards

1
Q

Long run ATC

A

constructing larger plants will lower the minimum ATC to a point, then larger plants will mean higher ATC

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2
Q

Law of Demand def

A

Other things equal, consumers will buy more of a product as the price declines and vice versa

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3
Q

Elastic demand

A

a modest price change can result in a substantial change in quantity

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4
Q

Inelastic demand

A

a substantial price change can only result in a modest change in quantity

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5
Q

Formula for Price Elasticity of Demand

A

=% change in quantity demanded of X / % change in price of X

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6
Q

What does the formula of price elasticity of demand measure?

A

the % change in quantity demanded of X due to a 1% change in the price for X

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7
Q

When is demand price elastic?

A

when a specific percentage change in prices results in a larger percentage change in quantity demanded
Ed will be greater than 1

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8
Q

When is demand price inelastic?

A

when percentage change in price results in a smaller percentage change in quantity demand
Ed will be less than 1

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9
Q

When is demand unit elastic?

A

when percentage change in price results in the same percentage change in quantity demanded
Ed will be 1

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10
Q

When is demand perfectly inelastic?

A

Ed = 0
price change results in no change in quantity demanded
Demand curve is a vertical line

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11
Q

When is demand perfectly elastic?

A

Current market price allows producers to sell as much as they need; however, even a small increase will drop demand to zero
Ed= infinite
Demand curve is a horizontal line

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12
Q

What is the formula for total revenue?

A

TR=P*Q

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13
Q

Total revenue test for when demand is elastic

A

decrease in price causes an increase in total revenue

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14
Q

Total revenue test for inelastic demand

A

decrease in price causes a decrease in total revenue

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15
Q

Total revenue test for unit elasticity

A

decrease in price causes no change in total revenue

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16
Q

Determinants of price elasticity of demand (4)

A

Substitutability
Necessity vs. luxury
Proportion of income
Time

17
Q

Substitutability

A

the larger # of sub. goods available, the greater the price elasticity of demand

18
Q

Proportion of income

A

the higher the price of a product relative to income, the greater price elasticity of demand

19
Q

Luxuries vs Necessity

A

the demand for “luxurious goods” tends to be more elastic than the demand for necessary goods

20
Q

Time

A

the demand of a product is more elastic the longer the time period its under consideration

21
Q

Habit formation

A

It may take time for consumers to adjust to price increases for things they regularly buy, but in time they’ll decrease consumption

22
Q

Product Durability

A

short run demand for gasoline is more inelastic in the short run than the long run

23
Q

Law of supply

A

producers will provide more of a product as price rises and vice versa

24
Q

Price elasticity of supply

A

measures responsiveness of the quantity supplied by producers when the product prices change

25
Q

Elastic Supply

A

modest price changes cause substantial changes in quantity supplied

26
Q

Inelastic supply

A

Substantial price changes only cause modest changes in quantity supply

27
Q

When is supply elastic?

A

Es is greater than 1

more than proportionate response to supply quantity to price

28
Q

When is supply unit elastic?

A

Es equals 1

29
Q

When is supply inelastic

A

Es is less than 1

30
Q

Factors effecting price elasticity of supply?

A

Are required inputs READILY AVAILABLE
Are required inputs TRANSFERABLE to production site?>
Are there SUBSTITUTES for required inputs?
What is the TIME FRAME for adjust inputs? (the longer the time frame the greater the quantity response, hence smaller price change

31
Q

Supply elasticity and the market period

A

if there is no time to adjust to a price change, the supply is perfectly inelastic

32
Q

supply elasticity and the short run

A

there is enough time to change variable inputs but not fixed inputs

33
Q

Supply elasticity and the long run

A

able to adjust all inputs

34
Q

when are X and Y substitute goods?

A

Exy is greater than 0

35
Q

When are X and Y independent goods?

A

Exy = 0

36
Q

When are X and Y complementary goods?

A

Exy is less then 1

APEC 1101 (10 decks)

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