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AP MicroEconomics Exam > Chapter 7 > Flashcards

Chapter 7 Flashcards

1
Q

What does the price elasticity of demand tell us?

A

the price elasticity of demand tells us how sensitive consumers are when the price changes

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2
Q

How do you calculate the price elasticity of demand?

A

price elasticity of demand:

percent change in price

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3
Q

What does it mean when the ratio is bigger?

A

it means consumers are more sensitive and responsive to changes in price

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4
Q

What do the numbers found from price elasticity of demand tell us?

A
  1. price elasticity of demand is greater than 1: demand is price elastic
  2. price elasticity of demand is less than 1: demand is price inelastic
  3. price elasticity of demand equals 1: demand is unit elastic
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5
Q

What does the midpoint formula tell us?

A

the midpoint formula tells us the percentage change between two prices or quantities on a demand curve

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6
Q

What’s the midpoint formula?

A

the midpoint formula is

the change in quantity demanded average price
————————————————- x ————————
change in price average quantity

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7
Q

When’s demand for a good perfectly inelastic?

A

When changes in the price have NO EFFECT on the quantity demanded.

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8
Q

What does perfectly inelastic look like on a graph?

A

perfectly inelastic is a VERTICAL line.

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9
Q

When’s demand for a good perfectly elastic?

A

When a change in price causes the quantity demanded to change without limits

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10
Q

What does perfectly elastic look like on a graph?

A

perfectly elastic is a HORIZONTAL line.

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11
Q

The more vertical a good’s demand curve is, _____

A

the more INELASTIC it is

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12
Q

The more horizontal a good’s demand curve is, _____

A

the more ELASTIC it is

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13
Q

What’s the income elasticity?

A

income elasticity is how sensitive consumers are when their incomes change

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14
Q

How do you calculate income elasticity?

A

income elasticity:
percent change in the quantity demanded
————————————————————
percent change in income

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15
Q

What’re luxury goods?

A

as income increases, the demand for the good increases A LOT

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16
Q

What’re necessities?

A

as income increases, the demand for the good increases A LITTLE.

17
Q

What does income elasticity tell us?

A
  1. income elasticity is greater than 1: the good is income elastic and is a luxury
  2. income elasticity is between 0 and 1: the good is income inelastic and is a necessity
  3. income elasticity is less than 0: the good is inferior
18
Q

What’s the cross price elasticity of demand?

A

the cross price elasticity of demand is the sensitivity of consumption of good X to a change in the price of Good Y.

19
Q

How to calculate the cross price elasticity of demand?

A

cross price elasticity of demand
percent change in the quantity demanded of good X
—————————————————————————-
percent chance in the price of Good Y

20
Q

What does the cross price elasticity of demand number tell us?

A
  1. cross price elasticity of demand is less than zero means they are COMPLEMENTARY goods
  2. cross price elasticity of demand greater than zero means they are SUBSTITUTE goods
21
Q

What’s the cross price elasticity of supply?

A

cross price elasticity of supply is how much the quantity supplied changes when the price changes

22
Q

What’s the cross price elasticity of supply formula?

A

cross price elasticity of supply formula

percent change in the price of Good X

23
Q

What does the cross price elasticity of supply tell us?

A

the greater the cross price elasticity of supply, the MORE SENSITIVE or RESPONSIVE suppliers are to a change in price

24
Q

How do taxes affect the market equilibrium?

A

taxes create dead weight loss by moving away from equilibrium

25
Q

What’s a revenue tariff?

A

a revenue tariff is a tax on imports

26
Q

What’s a protective tariff?

A

a protective tariff is a tax on exports

27
Q

How are tariffs and quotes similar in their economic effects?

A
  1. both raise prices
  2. both decrease consumer surplus
  3. both create deadweight loss
28
Q

What’s utility?

A

happiness

29
Q

How do you calculate marginal utility?

A

marginal utility equals
the change in total utility
————————————————-
the change in quantity demanded

30
Q

What happens to marginal utility as you consume more of something?

A

marginal utility DECREASES with each additional unit

31
Q

How do you get the most bang for your buck?

A

maximizing utility equation
marginal utility of good A marginal utility of good B
————————————- = ————————————–
price of good A price of good B

AP MicroEconomics Exam (4 decks)

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