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Econ 303 Micro > Exam 1 > Flashcards

Exam 1 Flashcards

1
Q

Key assumptions of supply and demand model

A
  1. S and D are in a single market
  2. all goods are identical
  3. all goods sells for the same price and everyone has the same info
  4. many producers and consumers in the market
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2
Q

Demand choke P

A

Where D curve intercepts Y-axis

-P @ which no consumer is willing to pay– Qd=0

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3
Q

inverse demand curve

A
  • price as a function of Qd

- solve for P

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4
Q

Factors that influence supply

A
  1. price
  2. cost of production
  3. # of sellers
  4. sellers’ outside options (substitutes)
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5
Q

supply choke price

A

no firm is willing to produce a good
Qs=0
Supply curve y-intercept

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6
Q

inverse supply curve

A

price as a function of quantity supplied

solve for P

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7
Q

to find choke prices of both S and D

A

set each equation equal to 0

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8
Q

market equilibrium

A

Qd=Qs

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9
Q

to find equilibrium P

A

set S and D equations equal to each other and solve for P

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10
Q

to find equilibrium Q

A

take equilibrium P and plug it into either the S or D curve equation

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11
Q

curve equations

A

y=a+bx
b=slope
a=y intercept

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12
Q

Qs>Qd

A

surplus

price floors cause

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13
Q

Qd>Qs

A

shortage

price ceiling cause

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14
Q

price floor

A

sets lowest P that can be paid legally for a good or service
binding above Pe
nonbinding below Pe

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15
Q

price ceiling

A

sets highest P that can be paid legally for a good or service
binding below Pe
nonbinding above Pe

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16
Q

elasticity of demand (Ed)

A

Ed= %ΔQd/%ΔP

no more absolute value

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17
Q

Perfectly inelastic

A

Ed=0

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18
Q

inelastic

A

-1<0 or between 0 and 1

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19
Q

unit elastic

A

=(-1) or 1

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20
Q

perfectly elastic

A

Ed= (-∞) or ∞

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21
Q

to calculate Ed at a point

A

(1/slope)*(P/Q)

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22
Q

horizontal demand curve

A

perfectly elastic

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23
Q

vertical demand curve

A

perfectly inelastic

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24
Q

the steeper the D curve & the bigger the slope

A

the more inelastic the D

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25
Q

the flatter the D curve & the smaller the slope

A

the more elastic the D

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26
Q

as move SE down a D curve

A

D becomes more inelastic

27
Q

TR=

A

P*Q

28
Q

if elastic and P goes down

A

TR goes up

29
Q

if elastic and P goes up

A

TR goes down

30
Q

if inelastic and P goes down

A

TR goes down

31
Q

if inelastic and P goes up

A

TR goes up

32
Q

Es=

A

%ΔQs/%ΔP

33
Q

Ey= Income elasticity of demand

A

%ΔQd/%ΔY
either pos or neg
pos=normal good
neg=inferior good

34
Q

Cross price elasticity

A

Exy= %ΔQdy/%ΔPx
if pos then they are substitutes
if neg then they are complements

35
Q

consumer surplus

A

willingness to pay-what actually pay

=1/2(quantity sold)*(demand choke price-market price)

36
Q

producer surplus

A

price-cost of production

=1/2(quantity sold)*(market price-supply choke price)

37
Q

to calculate CS and PS graphically

A

A=1/2bh

38
Q

economic incidence

A

whose purchasing power is reduced by the tax?

not always the same as the legal incidence

39
Q

DWL

A

inefficiency created by the tax–reduces the incentive to produce

40
Q

DWL< with ________demand

A

inelastic

41
Q

DWL > with __________demand

A

elastic

42
Q

demand inelastic the more incidence on the

A

consumers, less DWL

43
Q

demand elastic the more incidence on the

A

producers, more DWL

44
Q

When tax size increases

A

DWL goes up exponentially

45
Q

Laffer curve with taxes

A

as tax size increases, TR will go up but it will peak and then TR will go down if the tax size keeps getting bigger

46
Q

consumption bundle

A

the goods and services that you consume

goes into the Utility Function to compute the amt of utility

47
Q

marginal utility

A

the amt of utility you get from consuming one more unit of something

48
Q

law of diminishing marginal utility

A

as consume more, smaller additions of utility then dont get any utility or it becomes neg.

49
Q

assumptions about consumer preferences

A
  1. completeness and rankability
  2. more is better than less
  3. transitivity A>B B>C then A>C
  4. the more a consumer has of a good the less she is willing to give up of something else to get even more of that good
50
Q

completeness and rankability

A

ordinal ranking not cardinal

51
Q

Indifference curve

A

shows the bundles @ which a consumer won’t care which is bought
the higher the curve the more utility

52
Q

properties of an indifference curve

A
  1. ubiquitous( everywhere)
  2. can figure out which indifference curves have higher utility and why they are downward sloping (substitutes)
  3. curves never cross
  4. convex to the origin
53
Q

marginal rate of substitution definition

A

how many units of Y you are willing to give up to get one more unit of X

54
Q

marginal rate of substitution (MRS)

A

|ΔY/ΔX|

55
Q

MRS=

A

MUx/MUy= Px/Px

56
Q

budget constraint

A

Income= (PxX)+(PyY)

57
Q

Px/Py=

A

slope of budget constraint

58
Q

solve for _____ to get budget constraint equation

A

Y (the good relative to what is on the Y axis)

59
Q

MRS vs price ratio definition

A

How many units of y WILLING to give up vs how many units of Y you HAVE to give up

60
Q

if MUx/MUy=Px/Py then…

A

utility is maximized

61
Q

If MRS>price ratio then

A

not maximizing, buying too much y and too little x

62
Q

If MRS<price ratio then

A

not maximizing, buying too much x and too little y

63
Q

consumers optimal choice

A

when MRSxy=Px/Py

tangent of constraint and indifference curve

Econ 303 Micro (3 decks)

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