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Gabriella K. > ECON 2 - 110 > Flashcards

ECON 2 - 110 Flashcards

1
Q

what price elasticity of demand measure? (P.E.D.)

A
  • measures how much quantity (Qd) responds to a change in price (P)
    – measures the price sensitivity of buyers demand
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2
Q

price elasticity of demand - equation with %’s

A

Percent change in Qd /(OVER) Percentage change in P
- will be positive

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2
Q

Relationship between P.E.D and slope

A
  • NOT the same but CLOSELY RELATED
  • slope is a ratio of 2 changes
  • Elasticity is the ratio of 2 PERCENT changes
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2
Q

price elasticity of demand - equation with midpoint method

A
  1. End value - Start value /(OVER) midpoint = x
  2. multiply x by 100
  3. do 1 & 2 for Q and P
  4. THEN take Q result divided by P result
    - will be positive
    - answer form 4 is NOT a percent
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2
Q

How to calculate midpoint for midpoint method

A
  1. End value + Start value = x
  2. divide x by 2
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3
Q

2 RULES OF THUMB - abt curves of elasticity

A
  1. the FLATTER the curve, the BIGGER elasticity
  2. the STEEPER the curve, the SMALLER elascity
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4
Q

Different E. of D. curves - INELASTIC 1/5

A
  • demand curve is relatively steep
  • low price sensitivity - quantity will only change a LITTLE bit
  • < 1
  • price falls by 10%
  • quantity rises <10%
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5
Q

Different E. of D. curves - UNIT 2/5

A
  • the % change in Q exactly equals % change in P
  • =1
  • if P falls 10%, Q rises by 10%
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6
Q

Different E. of D. curves - ELASTIC 3/5

A
  • relatively flat curve, BUT NOT ENTIRELY
  • price sensitivity is high - big changes in quantity
  • > 1
  • p falls 10%
  • Q rises by >10%
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7
Q

Different E. of D. curves - PERFECTLY INELASTIC 4/5

A
  • perfectly vertical curve
  • NO price sensitivity price can change by whatever BUT Q changes by 0
  • 0% / 10%
  • elasticity is 0
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8
Q

Different E. of D. curves - PERFECTLY ELASTIC 5/5

A
  • perfectly horizontal curve
  • price sensitivity is extreme
  • infinity elasticity
  • as long as p is the same an infinite amount can be consumed
  • BUT if p changes by 1 cent Q drops to 0
  • any % / 0%
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9
Q

4 determinant of elasticity of demand

A
  1. the availability of subs. - more subs = more elastic ; less subs = less elastic (inelastic)
  2. necessity or luxury - necessity = inelastic, <1 ; luxury = are elastic
  3. how broadly or narrowly the good is defined - broad = inelastic, food ; narrowly (specific item) = elastic, sushi
  4. time horizon - elasticity is higher in the long run than in the short run, long run had more alternatives
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10
Q

ch. 14

how do you calculate profit?

equation

A

total revenue - total cost = profit

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11
Q

ch. 14

what is total revenue ?

A

TR - the amount a firm recives from the sale of its output(PxQ)

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12
Q

ch. 14

what is total cost ?

A

TC - the market value of the inputs a firm uses in production

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13
Q

ch. 14

explicit cost

A
  • requiers a outlay of money
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14
Q

ch. 14

implicent cost

A
  • dont requier a cash layout
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15
Q

ch. 14

how do you calculate accounting profit ?

equation

A

total revenue - total expliciet cost = acc. p.

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16
Q

ch. 14

how do you calculate economic profit ?

equation

A

total revenue - total cost = econ. p.

17
Q

ch 14

whats a firms goal?

in general

A
  • a firms goal is to maximiz profits, not just to make profits
18
Q

ch 14

profit

formula

A

= total revenue - total cost

19
Q

ch 14

total revenue

def. + fromula

A
  • is the amount a firm RECEIVES from sale of output
  • price x quantity
20
Q

ch 14

total cost

def

A
  • the market value of the inputs that are used in production
21
Q

ch 14 explicit cost VS implicit cost :

explicit cost

def + ex+ also

A
  • requires an outlay of money
  • ex. = paying wages to workers
  • this ex is EC cuz they are on the books & recorded
22
Q

ch 14 explicit cost VS implicit cost :

implicit cost

def + ex+ also

A
  • DO NOT require a cash outlay
  • ex. = your time, alteratives to what you could have been doing with that time
  • they are the OP cost of doing buisnnes or alts
23
Q

ch 14 explicit cost VS implicit cost :

general info

A

-both EC and IC are important to a firm
-also both matter in firms disicions

24
Q

ch 14 Economic profit VS accounting profit

Economic profit

both are Formulas

A

= total revenue - total cost(tc)
- tc includes BOTH im/explicit cost

25
Q

ch 14 Economic profit VS accounting profit

accounting profit

both are Formulas

A

= total revenue - total EXplicit cost
- Ac profit will be higher then eco. profit
- this is because AC prof. IGNORES implicet cost

26
Q

ch 14 production function

production function

def + note

A

-> showes us the realtionship btwn the quantity of INPUTS used to produce a good & the quanity of OUTPUT of that good
- basically, if we put so much in how much do we get out
- can be shown by table and graph

27
Q

ch 14 marginal production

marginal production

note + def.+ formula

A
  • if jack hires 1 more worker, his output will rise by the marginal product (of labor)
  • > the change in your output IF and additoinal input is added
  • MPL = Delta Q/(OVER) Delta L
  • > > delta will apear as greek letter & means change in, so change in output divided by change in labor
28
Q

ch 14 marginal production

Diminishing MPL

What is it and how it happens

A

-diminishing marginal product = Mp of an INPUT DECLINES as the Quantity of input increases
- bascially, output per added worker declines the more workers that are hired
- in general MPL diminishes as L rises

29
Q

ch 14 fixed cost & variable cost + Total cost

fixed cost

A

-> do NOT change with the quantity of output produced
- even if theres no production you MUST pay

30
Q

ch 14 fixed cost & variable cost + total cost

variable cost

A

-> DO change with output
- the 2 VCs are wages paid to workers & cost of raw materials
-

31
Q

ch 14 fixed cost & variable cost + total cost

total cost

formula

A
  • tc = fc + vc
  • fixed cost + variable cost

add pic

32
Q

Ch 14 aver. fixed cost & aver. variable cost + aver. total cost

aver. fixed cost

formula + notes

A
  • AFC = FC /(OVER) Q
  • fixed cost divided by quan of output
  • AFC will always be decreasing
  • AFC will NEVER be 0, but can be close
    • add pic
33
Q

Ch 14 aver. fixed cost & aver. variable cost + aver. total cost

aver. variable cost

formula + notes

A
  • AVC = VC/(OVER) Q
  • variable cost divided by quan of output
  • as Q rises AVC may fall initaly, but will event. raise as Q rises
  • looks like a small smile
34
Q

Ch 14 aver. fixed cost & aver. variable cost + aver. total cost

aver. total cost : Formula 1

formula + notes + pic

pic is same for F1 & F2

A
  • ATC = TC/(OVER) Q
  • total cost divided by quan of output
35
Q

Ch 14 aver. fixed cost & aver. variable cost + aver. total cost

aver. total cost : Formula 2

formula + notes + pic

pic is same for F1 & F2

A
  • ATC = AFC + AVC
  • aver. fixed cost + aver. variable cost
36
Q

Ch 14 relationship btwn Marginal cost + Average total cost & eff. scale

marginal cost

aka MC , def + formula + what it tells us

A
  • is the increase in total cost (TC) from producing 1 more unit
  • DeltaTC/(OVER)DeltaQ = change in total cost div. by change of quan
  • mc answers the question if more ore less should be produced to maximize profit
37
Q

Ch 14 relationship btwn Marginal cost + Average total cost & eff scale

effiencient scale

A
  • its the lowest point on ATC curve
  • aka = effient point
38
Q

MONOPOLY

what is it & what does it have

A

-1 firm that is sole seller of a product w/o close sub
- has market power
- ability to influence market price
- price maker

39
Q

monopoly

barriers of entry - 3

A
  1. a single firm owns key resoucese - debeers
  2. gov gives a single firm the exclusive right to produce good - copyright
  3. a natural monoply
40
Q

monopoly

whats a natural monopoly & abt it

A
  • singel firm can produce for entire market at lower cost then several firms
  • graph - has a downward sloping ATC curve
  • has huge fixed cost and small marginal cost
41
Q

why does MR slope down & why is MR<P

A
  • to sell larger Q (output), a monoply must lower price
42
Q

why does monopoly have no S(upply) curve

A

there is no law of supply in monopoly

43
Q
A

Gabriella K. (10 decks)

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