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Econ200 > Exam 2 > Flashcards

Exam 2 Flashcards

1
Q

Elasticity

A

a measure of how much buyers and sellers respond to changes in market conditions

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2
Q

price elasticity of demand

A

a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price

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3
Q

Elastic

A

if the quantity demanded responds substantially to changes in price
When elasticity is greater than 1 : the quantity moves proportionately more than the price

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4
Q

inelastic

A

if the quantity demanded responds only slightly to changes in the price
When elasticity is less than 1: the quantity moves proportionately less than the price

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5
Q

Close substitutes

A

goods with close substitutes tend to have more elastic demand because it is easier for consumers to switch from that good to others

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6
Q

Necessities

A

have inelastic demands

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7
Q

luxuries

A

have elastic demands

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8
Q

Time horizons

A

goods tend to have more elastic demand over longer time horizons

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9
Q

Price elasticity of demand

A

percentage change in quantity demanded over percentage change in price

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10
Q

quantity vs. price elasticity

A

since the quantity demanded of a good is negatively related to its price, the percentage change in quantity will always have the opposite sign as the percentage change in price

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11
Q

Midpoint method

A

computes a percentage change by dividing the change by the midpoint or average of the initial and final levels
[(Q2 - Q1) / ((Q2-Q1)/2) ] / (P2 - P1) / ((P2-P1)/2)

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12
Q

Unit elasticity

A

the quantity moves the same amount proportionately as the price

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13
Q

Perfectly inelastic

A

vertical line: Elasticity equals 0

demand remains unchanged as price changes

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14
Q

Inelastic demand

A

elasticity is less than 1 (steeper the slope, the more inelastic)

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15
Q

Unit elastic demand

A

elasticity equals 0

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16
Q

Elastic demand

A

elasticity is greater than 1 (shallower slope, the more elastic)

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17
Q

Perfectly elastic demand

A

horizontal line: elasticity equals infinity

Price remains unchanged as quantity changes

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18
Q

Total revenue

A

the amount aid by buyers and received by sellers of a good computed as the price of the good times the quantity sold

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19
Q

revenue changes

A

if demand is inelastic, an increase in price causes an increase in total revenue
if demand is elastic, an increase in the price causes a decrease in the total revenue

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20
Q

Income elasticity of demand

A

a measure of how much the quantity demanded of a good responds to a change in consumers’ income, computed as the percentage change in quantity demanded divided by the percentage change in income.

21
Q

Normal good

A

higher income raises the quantity demanded

positive income elasticities

22
Q

inferior goods

A

higher income lowers the quantity demanded

negative income elasticities

23
Q

Luxuries

A

tend to have large income elasticities because consumers feel that they can do without these goods altogether if their incomes are too low

24
Q

Cross-price elasticity of demand

A

a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good

25
Q

Price elasticity of supply

A

a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price

26
Q

Economists as scientists

A

develop and test theories to explain the world around them

27
Q

Economists as policy advisors

A

use their theories to help change the world for the better

28
Q

Price ceiling

A

a legal maximum on the price at which a good can be sold

29
Q

Price floor

A

a legal minimum on the price at which a good can be sold

30
Q

Not binding

A

if the price of equilibrium is below the ceiling the ceiling is nonbinding

31
Q

Binding constraint

A

if the equilibrium is above the price ceiling it is binding

causes a shortage

32
Q

Binding price floor

A

causes a surplus because there is more demanded at that price than supplied

33
Q

Tax incidence

A

the manner in which the burden of a tax is shared among participants in a market

34
Q

burden of tax

A

the burden of the tax falls on the side of the market that is less elastic

35
Q

Welfare economics

A

the study of how the allocation of resources affects economic well-being

36
Q

positive

A

what is

37
Q

normative

A

what should be

38
Q

Willingness to pay

A

the maximum amount that a buyer will pay for a good

39
Q

consumer surplus

A

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

40
Q

marginal buyer

A

the buyer who would leave the market first if the price were any higher

41
Q

cost

A

the value of everything a seller must give up to produce a good

42
Q

producer surplus

A

the amount a seller is paid for a good minus the seller’s cost of providing it

43
Q

efficiency

A

the property of a resource allocation of maximizing thee total surplus received by all members of society

44
Q

equality

A

the property of distributing economic prosperity uniformly among the member of society

45
Q

laissez faire

A

allow them to do

46
Q

market power

A

the ability to influence prices

47
Q

externalities

A

side effects

48
Q

market failure

A

the inability of some unregulated markets to allocate resources efficiently

49
Q

deadweight loss

A

the fall in total surplus that results from a market distortion, such as a tax

Econ200 (2 decks)

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