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Econ of PP Exam 1 > Econ Exam 1 > Flashcards

Econ Exam 1 Flashcards

1
Q

Normative Economics

A

Prescriptive, “should”

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2
Q

Positive Economics

A

Descriptive, “what is”

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3
Q

Law of Demand

A

As price increases, quantity demanded decreases (incentivizes consumers to substitute or they are unable to pay)

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4
Q

Law of Supply

A

As price increases, quantity supplied increases (incentivizes suppliers to move into market)

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5
Q

Things that shift a Demand Curve in/out

A

New information that changes preference, price of substitute or complement, technology, change in # of buyers, expectations about the future

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6
Q

Normal Good

A

As income increases, quantity demanded increases

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7
Q

Inferior Good

A

As income increases, quantity demanded decreases

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8
Q

Luxury

A

As income increases, percent of income spent on good increases

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9
Q

Necessity

A

As income increases, percent of income spent on good decreases

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10
Q

Things that shift a Supply Curve in/out

A

Changes in input prices, technology, expectation about future, price of related goods, weather, # of sellers

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11
Q

4 Assumptions of Consumption

A
  1. Consumer assumer to have preferences 2. Consumer is non satiable 3. Convex preferences 4. Consumer makes resource allocation according to preferences
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12
Q

MRS (x,y)

A

Negative slope of indifference curve (- change in Y/ change in x), how much X would you give up for some Y, dy/dx

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13
Q

What does MRS equal at Max utility

A 
MRS(x,y)  = price X/Price Y 
MRS = price ratio (MRT)
MRS = budget constraint
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14
Q

Surplus

A

Quantity Demanded < Quantity Supplied

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15
Q

Shortage

A

Quantity Demanded > Quantity Supplied

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16
Q

Price Ceiling

A

legal maximum on price, goal: to protect consumers from high price e.g. rent control

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17
Q

Price Floor

A

Legal minimum of price e.g. minimum wage

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18
Q

Completeness in Preference

A

Can’t say IDK

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19
Q

Transitivity in Preference

A

If you like A more than B and B more than C, then you like A more than C

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20
Q

Nonsatiation in preference

A

More is Better

21
Q

Convex Preferences

A

consumers prefer diversity, they would like to balance their budget

22
Q

Consumer Surplus

A

Excess of what I’m willing to pay after I paid for what I wanted (we see this in the event of a price ceiling for those who could have afforded higher rent but were able to get the capped price, that excess is lost to the market)

23
Q

5 Properties of Indifference Curves

A
  1. NE preferable to SW 2. Every bundle is on a curve 3. Never cross 4. Slope downward 5. Never thick
24
Q

Ordinal

A

relative ranking

25
Q

Cardinal

A

whole number value

26
Q

MRS (burritos, pizza)

A

(-) dPizza/dBurritos

27
Q

Slope of indifference curve for Perfect Substitutes

A

Linear

28
Q

Slope of indifference curve for compliments

A

right angle graphs

29
Q

Marginal Rate of Transformation (MRT)

A

ration of prices, not about preferences but about market values and tradeoffs, MRT= dy/dx, -(p1/p2)

30
Q

Constrained Optimization

A

MRS = MRT = - marginal utility x/ marginal utility Y = - price x/ price Y

31
Q

Cobb Douglass Lagrange Heuristic

A

U = X ^a Y ^ b
X = a/ (a+b) * (Income/price x)
Y = b/ (a+b) * (Income/price Y)
Only if a + b = 1

32
Q

Theoretical Intermediate

A

e*
represents the substitution effect, in a model where we change the price of one good but move the new MRS under new price ratio out to meet the old utility effect

33
Q

Engel Curve

A

As income increases, the share of your income you spend on a good increases

34
Q

Substitution effect

A

the change in Q demanded when prices increase holding other price constant and UTILITY CONSTANT
E1-E*

35
Q

Income effect

A

the change in Q demanded when income changes (perhaps spending more on necessity with changed price and not substituting) holding other prices constant
E*-e2

36
Q

Sign of substitution effect for an own price increase

A

Negative

37
Q

Sign of substitution effect for a cross price increase

A

Positive

38
Q

Elasticities

A

How responsive one variable is to a change in another variable, usually demand for a good sensitive to a price change

39
Q

Elasticity > 1

A

Elastic

40
Q

Elasticity < 1

A

Inelastic

41
Q

Elasticity = 1

A

Unit elastic

42
Q

Income Elasticity of demand

A

%change Q demanded/ % change Income

43
Q

Price elastic of demand

A

%change Q demanded/ % change price

44
Q

cross-price elastic of demand

A

% change in Q1/ % change in P 2 = dq1/dp2 (p2/p1)

45
Q

Uncompensated demand

A

Total effect (sub + income)

46
Q

Compensated Demand

A

only substitution effect

47
Q

Slutsky Equation

A

total effect = sub effect + income effect

48
Q

Consumer Price Index

A

Typical basket of gods priced in a specific year

Econ of PP Exam 1 (1 decks)

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