Exam 2 Flashcards
Ranking Indifference curves: What should you look for
The indifference curve that is the furthest to the right / the further away from the origin point the higher the utility
which of the following is true of average fixed costs in the long run?
a. average fixed costs start increasing
b. average fixed costs are above average variable costs
c. there are no fixed costs in the long run, so there are also no average fixed costs in the long run
d. average fixed costs intersect the marginal cost curve at its minimum point
e. a and b
c
Know how to calculate cross price elasticity
% change in quantity of Y demanded
/
% change in price of X
Are positive cross price elasticity of demand substitutes or compliments?
Are negative cross price elasticity of demand substitutes or compliments?
Positive: substitutes
Negative: Compliments
Given AFC, ATC, and Q be able to calculate TC, MC, and AVC
TC = TVC + TFC
MC = Change in TC / Change in Q
AVC = TVC / Q
What makes substitute goods more elastic
more readily available and similar substitutes
which of these statements is false?
a. there are no fixed costs in the long run
b. total costs are equal to total fixed costs plus total variable costs
c. in the short run, all inputs are fixed inputs
d. a fixed cost is a cost that does not change as output changes
c
calculate total revenue , total cost, and fixed cost given price, output, ATC, and AVC
total revenue = price x quantity
total cost = total fixed cost + total variable cost
fixed cost = total revenue - (AVC x quantity)
economies of scale vs diseconomies of scale
Economies of scale occur when average production costs decrease as output increases, while diseconomies of scale occur when average production costs increase as output increases
positive vs negative elasticity of demand (which is for normal goods and which is for inferior goods)
positive: normal good
negative: inferior good
income change what happens to budget constraint?
if your income is lowered your budget is lowered and you can buy less dollars of goods.
if your income is higher then your budget is increased and you can buy more dollars of goods.
if a 5 percent reduction in the price of a commodity results in a 3 percent increase in the quantity demanded demand is said to be
a. perfectly elastic
b. elastic
c. unit elastic
d. inelastic
e. perfectly elastic
b
If the cross-price elasticity of demand between fish and beef is 3, then a 2% increase in the price of
fish will result in a ________ in the quantity of beef demanded.
a) 1% increase
b) 6% increase
c) 10% increase
d) 20% decrease
b
The income elasticity of demand for education is 3.5. Thus, a 3% decrease in income will
a) decrease the quantity of education demanded by 3.5%.
b) decrease the quantity of education demanded by 10.5%.
c) increase the quantity of education demanded by 6%.
d) increase the quantity of education demanded by 10.5%
b
If the quantity demanded of Nintendo Switch decreased by 8% when the price of Nintendo Wii
decreases by 16%, the cross-price elasticity of demand between Switch and Wii is
a) 0.5.
b) -5.
c) -2
d) 2
a
