Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Spring 2018 > Eco 201 ch 5, 7, 13, 21 > Flashcards

Eco 201 ch 5, 7, 13, 21 Flashcards

1
Q

Price Ceiling

A

A legal maximum on the price at which a good can be sold.
• The price ceiling price is set below equilibrium price
Ex. Maximum price placed on apartment rents; maximum price placed on gasoline.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Price Floor

A

A legal minimum on the price at which a good can be sold.
The price floor price is set above the equilibrium price
Examples of Price Floors
Prices set on agriculture products

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Elasticity

A
  • a measure of the responsiveness of quantity demanded or quantity supplied to one of its shift factors.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Price elasticity of demand

A

a measure of how much the quantity demanded of a good responds to a change in the price of the good.
Ed= % change in qty demanded/% change in price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Elastic demand

A
  • elasticity of demand with absolute value greater than one ED>|1|
    If price increases by 10% qty demand decreases by more than 10%.

Examples of Elastic Products
Tide Detergent |2.79|
Pepsi |2.08|
Coke|1.71|

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Inelastic demand

A
  • elasticity of demand with absolute value between zero and one. |0 - 1|
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Unitary demand

A
  • elasticity of demand with absolute value equal to one ED=|1|
    If price increases by 10% than quantity demanded decreases by 10%.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Total revenue

A
  • the amount paid by buyers and received by sellers of a good. Calculated as the price of the good multiplied by the quantity sold. (Price * quantity)

Total revenue = 10* 100 = $1000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

If price elasticity of demand is elastic you ____ prices to increase total revenue

A

decrease

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

If price elasticity of demand is inelastic you ______ prices to increase total revenue

A

increase

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

If price elasticity of demand is unitary you_____ prices to increase total revenue

A

do not change

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Income Elasticity of Demand

A

A measure of how much the quantity demanded of a good responds to a change in consumer income.
Yd =%change in quantity demand/%change in income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Necessity goods

A
  • a good with an income elasticity of demand between 0 and 1. 0
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Luxury good

A
  • a good with an income elasticity of demand greater than 1. YD>1
Examples of Luxury goods and Necessity Goods
Fresh Fruit  1.99
Computers  1.71
College Education  .55
Cigarettes  .50
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Inferior good

A
  • a good with an income elasticity of demand less than zero. YD<0

Examples of Inferior goods
Tooth extraction -0.25
Bread -.42
Potatoes -.81

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Cross price elasticity of Demand

A

A measure of how much the quantity demanded of one good responds to a change in the price of another good.

Xd=%change In quantity demanded of good 1/%change in price of good 2

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Substitutes

A
  • a good with a cross price elasticity of demand greater than zero. XD>0

Examples of substitute goods
Coke and Pepsi; Margarine and butter; Ground Beef and Poultry

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Complements

A
  • a good with a cross price elasticity of demand less than zero. XD<0

Examples of Complement goods
Shampoo and Conditioner; Burgers and Buns; Keys and Key chains

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is Welfare Economics?

A

The study of how the allocation of resources affects economic well-being.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is Willingness to Pay?

A

The maximum amount that a buyer will pay for a good.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is Consumer surplus?

A

The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for the good.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Cost

A

The value of everything a seller must give up to produce a good

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Producer Surplus

A

The amount a seller is paid for a good minus the seller’s cost of providing the good

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Total Surplus

A

Value to buyer-costs to sellers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Efficiency

A

An allocation of resources that maximizes total surplus received by all members of society

equity enhancement!

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Equity

A

The fairness of the distribution of well-being among the buyers and sellers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What 3 Market Outcomes for Consumer Surplus and Producer Surplus happen, in a free market setting?

A
  1. Free markets allocate the supply of goods to the buyers who value them most highly
  2. Free markets allocate the demand for goods to the sellers who can produce them at least cost
  3. Free markets produce the quantity of goods that maximizes the sum of consumer surplus and producer surplus
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Excise tax

A
  • a tax on a specific good or service

Tax incidence- the division of tax payment between producers and consumers. (Who pays the tax)

29
Q

Tax incidence

A
  • the division of tax payment between producers and consumers. (Who pays the tax)
30
Q

How do you tell if the demand curve or supply more elastic?

A

If demand is more elastic than producers pay the higher amount of the tax.

If supply is more elastic than the consumers pay the higher amount of the tax.

Ex $50 toy
+ $10 tax
consumer price = 56$

In our example above consumer paid $6 and producer paid $4. The supply curve is more elastic in this example because the consumers paid the higher amount of the tax.

ex2
Before tax price of $60. Tax of $15. After tax price of $66.
Consumers pay $6. ($66-$60)
Producers pay $9. (Tax is $15 consumes had paid $6 so $9 left to be paid)
Is the Demand curve or Supply more elastic?
The demand curve is more elastic the consumers pay less of the excise tax.

31
Q

Whenever a price floor is set the market develops a shortage of the good that is produced. T or F

A

F

32
Q

Budget Constraint

A

The different combinations of goods a consumer can afford with a limited budget, at given prices.

Budget Constraint Example
Income= Price of good X * (X) + Price of good Y * (Y)

In the example we will use Income will be $200; concerts will be good X and the price of concerts is $40; Movies will be good Y and price of movies is $10.

Budget Constraint is $200=40X + 10Y

33
Q

Budget Line

A

The graphical representation of the budget constraint.

Page 441 Figure 1 is an example of a budget line.

34
Q

Relative Price

A

The price of one good relative to the price of another good

35
Q

X intercept

A

If we spent all of our money on concerts (good X) how many concerts could we attend?
200=40X and then solve for X. You divide both sides of the equation by 40 and get X =5 which is the X intercept for our budget constraint.

36
Q

Y intercept

A

If we spent all our money on movies (good Y) how many movies could we attend?
200=10Y and then solve for Y. You divide both sides of the equation by 10 and you get Y=20 which is the Y intercept for our budget constraint.

37
Q

Slope

A

The slope is - (Price of good X)/ (Price of good Y). The slope of this budget constraint is – (40)/ (10) which is – (4). The slope will always be negative because the budget line is downward sloping.

38
Q

Changes in Income

A

Increases in income shifts the budget line upwards (outwards). Changes in income does not affect the slope of the budget line. This is true because there has not been a change in prices.
Now assume our income is $400 while concerts are $40 and movies are $10.

39
Q

Utility

A

A quantitative measure of pleasure or satisfaction obtained from consuming goods and services

40
Q

Marginal Utility

A

Changes in utility individuals enjoy from consuming an additional unit of the good.

the difference between the current utility and the previous utility

41
Q

Law of Marginal Utility

A

As consumption of a good or services increases; the marginal utility of the good decreases

42
Q

Total Product-

A

the maximum quantity of output that can be produced from a given combination of inputs.

43
Q

Marginal Product of Labor-

A

-the additional output produced when one more worker is added.

44
Q

Diminishing Marginal Returns to Labor-

A

the marginal product of labor decrease as more labor is added

45
Q

Law of Diminishing Marginal Returns-

A

as more of any input is added to a fixed amount of other inputs, its marginal product will eventually decline

46
Q

Sunk Costs-

A

a cost that has been paid or must be paid, regardless of any future action

47
Q

Average Variable Costs

A

Variable costs divided by output

48
Q

Average Total Costs

A

It is total costs divided by output. It can also be calculated by taking adding average fixed costs and average variable costs.

49
Q

Marginal Costs

A

It is the additional costs from producing additional units of output. Calculate by taking the difference between the total cost currently and the total cost at the previous output level.

a. When marginal product of labor increases; marginal costs decrease
b. When marginal product of labor decreases; marginal costs increase

50
Q

Relationship Between Average costs and marginal Costs

A

a. When marginal costs are below average variable costs and average total costs they both decrease
b. When marginal costs are above average variable costs and average total costs they both increase
c. Marginal Costs and Average Costs Example

51
Q

Technology-

A

a method by which inputs are combined to produce a good or service

52
Q

Fixed Input-

A

an input whose quantity must remain constant regardless of how much is produced

Ex. Building, equipment

53
Q

Variable Input-

A

an input whose usage can change as the level of output changes
Ex. Labor, materials

54
Q

Short Run-

A

a time horizon during which at least one of the firm’s inputs is fixed

55
Q

Long Run-

A

a time horizon long enough for a firm to vary all of its inputs

56
Q

Fixed costs

A

Costs of fixed inputs

57
Q

Variable costs

A

Costs of variable inputs

58
Q

Total Costs

A

It is the costs of all inputs. Fixed costs + Variable costs

59
Q

Average Fixed Costs

A

Fixed costs divided by output

60
Q

Least Cost Rule

A

The firms will choose the input mix with the lowest costs in order to produce any given level of output.

61
Q

Long Run Average Total Costs

A

the costs of producing each quantity of output in the long run when all inputs are variable.
Long run average total costs (LRATC) is the long run total costs divided by quantity of output.

62
Q

Shape of the Long Run Average Total Cost Curve

A

The long run average total cost curve is U shaped. See figure 5 page 271.

63
Q

Economies of Scale

A

Long run average total costs decreases as the quantity of output increases

64
Q

Diseconomies of Scale

A

Long run average total costs increases as the quantity of output increases

65
Q

Constant returns to Scale

A

Long run average total costs do not change as the quantity of output increases

66
Q

Reasons for Economies of Scale

A
  1. high startup costs
  2. adopt mass production techniques
  3. specialization and division of labor
  4. learning by doing
  5. quantity discounts
  6. economies of scope (producing 1 good reduces cost of producing another good)
67
Q

Reasons for Diseconomies of Scale

A
  1. firms get too large
  2. more opportunities for employees to not work as hard
  3. more costly to have additional monitoring
  4. loss of morale in the workplace
68
Q
  1. The determinant of elasticity that looks at the fact that some items we purchase take up more of a consumers’ budget is
    a. The Time Horizon
    b. Necessities vs Luxuries
    c. Importance of Consumer’s Budget
    d. Availability of Substitutes
A

C

Spring 2018 (13 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions