Econ Quiz 2 Flashcards
1
Q
Ceiling Price
A
- Legally mandated max. Price for good/services.
* Shortage
2
Q
Price Control
A
- Government can set prices but they can’t force a business to supply
- Price are not levers that set value
- Creates DWL
3
Q
Dead weight Lost
A
- DWL
- Lost welfare due to mutually beneficial trades which did not take place
- Inefficiency
- Implies that on net society is made worse off
4
Q
Price floor
A
- A legally mandated minimum price for a goo/services
- Also creates DWL/inefficiency
- Surplus
5
Q
Binding vs. nonbinding Price Control
A
•Binding- price floor must be set above the equilibrium, price ceiling must be set below the equilibrium
6
Q
Revenue
A
- Money that a firm earns form selling a product (before taxes etc)
- Total revenue- price per units sold X quantity of unit sold
- Lower- more people would buy
- Raise- more in revenue
- Price effect- increase price-> increase revenue earned per unit
- Quantity effect- increase price-> decrease quantity of units sold
7
Q
Elasticity
A
- Measure of how responsive the changing in quantity demanded is in response to a change in price
- ED= %change in Qd/ %change in P
- lel> 1: Elastic (small change in price large change in Q) very price sensitive
- lel< 1: Inelastic (large change in P small change in Q) price insensitive
- lel= unitelastic
- can look at steepness but not slope
- steeper slope more ineasltic good (unique)
- flatter slope more elastic (not very unique)
8
Q
Elastic reasoning for Demand
A
- Bow Ties VS. Toilet paper (luxury or necessity)
- Ipad vs. pack of gum (share income spent on a good)
- Chocolate ice cream vs. gasoline (substitutes )
- Gas prices next decade vs. Gas prices nest week (time horizon- more time to adapt)
9
Q
Mid-point method
A
- Percent change mp= (new-original/midpoint) x100
* MP= new + original/2
10
Q
Elasticity of Supply
A
- The percent change in quantity supplied as a result of a percent change in the price of a product
- How producers are able to respond to price changes
- Perfectly inelastic (Picasso paintings)
- Perfectly elastic (set )
11
Q
Elastic reasoning for supply
A
- Cabs vs crude oil (availability)
- Eggs vs. Christmas trees (substitutability)
- Apple sauce vs. apples (perishability)
- Crude oil in 10 years vs. crude oil today (time horizon)
12
Q
Demand (inelastic)
A
- Inelastic the price effect dominates
- When price on an inelastic good decreases the revenue will fall
- When the price of an inelastic good increase the amount of revenue will rise
13
Q
P>p*
A
Downward
13
Q
Demand (elastic)
A
- Quantity effect dominates
- What the price of an elastic good decreases the revenue will rise
- When the price of an elastic good increases the revenue will fall
14
Q
P<p*
A
Upward pressure
