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AP Econ > Chapter Three > Flashcards

Chapter Three Flashcards

0
Q

Law of demand

A

Inverse relationship between price and quantity demanded—negative slope

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1
Q

Market

A

Brings together buyers and sellers

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2
Q

Determinants of demand

A

1) Change in Taste
2) Amount of buyers
3) Income of buyers
4) Prices of related goods
5) Consumer expectations

Lead to movement of the curve

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3
Q

Changes in the quantity of demand

A

Movement of the point

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4
Q

Law of supply

A

Direct relationship–positive slope

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5
Q

Determinants of supply

A

1) Resource prices
2) Technology
3) Taxes and subsidies
4) Prices of other goods
5) Producer expectations
6) Number of sellers

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6
Q

Equilibrium price

A

Intentions of buyers and sellers match

Supply=demand

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7
Q

Allocative efficiency

A

Mix of goods and services most highly valued by society

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8
Q

How does the equilibrium price change if the supply increases and the demand increases?

A

The supply increasing would drop the equilibrium price the demand rising would boost it so it would stay roughly the same

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9
Q

If both the supply and demand decrease what will happen to the equilibrium price?

A

It will fall

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10
Q

Decrease in supply

A

Increases equilibrium price and reduces the equilibrium quantity

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11
Q

Increase in demand

A

Boosts both the equilibrium price and quantity

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12
Q

Price ceiling

A

A line underneath the equilibrium in order to help consumers. It leads to a shortage

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13
Q

Price Floor

A

Line above the equilibrium to help suppliers and leads to a surplus

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14
Q

Do price floors and ceilings change supply and demand?

A

NO

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15
Q

Tax Supply Demand Graph

A

Supply shifts in
Both consumers and producers lose
Deadweight loss
Government takes center rectangle for taxes (tax revenue)

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16
Q

Price elasticity of demand

A

Responsiveness of consumers to a price change is meadured by a product’s price elasticity of demand

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17
Q

Elastic

A

When price changes cause large changes in the quantity purchased

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18
Q

Inelastic

A

When there is not a real change in quantity purchased due to a price change

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19
Q

Ed=

A

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

Will always be negative—–absolute value

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20
Q

Midpoint formula

A

Ed= change in quantity/sum of quantities/2

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21
Q

Ed>1

A

Elastic

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22
Q

Ed<1

A

Inelastic

23
Q

Ed=1

A

Unit elastic

24
Q

Perfectly inelastic

A

Absolutely no consumer response, Ed=0

Vertical demand

25
Q

Perfectly elastic

A

Ed=infinity

Horizontal demand

26
Q

Total Revenue

A

TR=P*Q

If demand is elastic, decrease in price will increase TR (inverse)

If demand is inelastic, decrease in price will decrease the TR (direct)

Unit elastic= no change in TR

27
Q

Elasticity along a demand curve

A

Depends on the location of the point…differs throughout curve

28
Q

Determinants of Ed

A

1) Substitutability–more substitutes=more elasticity
2) Proportion of income
3) Luxuries or necessities?
4) Time

29
Q

Price elasticity of supply

A

Es= % change in quantity supplied/ % change in price

degree of price elasticity of supply depends on how easily producers can shift resources for alternative use

30
Q

Immediate market period

A

length of time over which producers are unable to respond to a change in price with a change in quantity

31
Q

Short run (microeconomics)

A

Period of time too short to change plant capacity but long enough to use the fixed size plant more or less intensely

32
Q

Long run

A

Time period long enough to adjust plant size

33
Q

Cross elasticity of demand

A

how sensitive consumer purchases of one product are to a change in the price of another product (for understanding complementary goods)

Exy= % change in quantity demanded of X/ % change in price of product y

if + then substitutes
if - then complements
if 0 then unrelated

34
Q

Income elasticity of demand

A

measures the degree to which consumers respond to a change in income by buying more or less of a good

Ei= % changed in quantity demanded/ % change in income

Normal= Ei= +
Inferior= Ei= -
35
Q

TR and elasticity

A

Rubber band

Price and TR move in opposite directions

36
Q

TR and inelasticity

A

Pencil

Price and TR move in the same direction

37
Q

Determinants of elasticity of supply

A

Time period

38
Q

Long period

A

Elastic

39
Q

Horizontal elasticity of supply

A

more elastic

40
Q

Vertical elasticity of supply

A

more inelastic

41
Q

Taxes with relatively inelastic versus elastic demand (same tax/shift in supply)

A

Elastic has more deadweight loss
Consumers pay more tax when demand is inelastic
Producers pay more with elastic
More tax revenue with relatively inelastic demand

42
Q

If price falls and demand is inelastic then TR

A

decreases

43
Q

Price rises and demand is elastic then TR

A

decreases

44
Q

Price rises and supply is elastic then TR

A

increases

45
Q

Price rises and supply is inelastic then TR

A

increases

46
Q

Price rises and demand is inelastic TR

A

increases

47
Q

Price falls and demand is elastic then TR

A

increases

48
Q

Price falls and demand is unit elastic TR

A

is unchanged

49
Q

A downward sloping demand curve can be explained by

A

Diminishing marginal utility
the substitution effect
the income effect

50
Q

Quantity demanded is a

A

shift of the point

51
Q

Demand is a

A

shift in the curve

52
Q

Elasticity questions

A

p and q move in opposite directions

53
Q

if TR remains constant

A

unit elastic

54
Q

The substitution effect causes a consumer to buy less of a product when the price increases because the

A

product is now more expensive compared to similar products

AP Econ (15 decks)

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