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EC 201 > Exam 2 > Flashcards

Exam 2 Flashcards

1
Q

A measure of how responsive one variable is to a change in another variable

A

elasticity

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2
Q

All elasticities are

A

percentage changes

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3
Q

Elasticity general formula

A

Percent Change in Quantity / Percent Change in Price

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4
Q

Elasticity formula for Consumers (demand)

A

Percentage change in Quantity / Percentage change in Price

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5
Q

Calculated as the percentage change of quantity demanded divided by the percentage change in price

A

Price of Elasticity of Demand

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6
Q

Price of Elasticity of Demand formula

A 
%△Qd = ((Q2 - Q1) / Q1) * 100
%△P = ((P2-P1)/P1) * 100
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7
Q

If the price decreases by 1% the quantity demanded will

A

increase by -2.5%

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8
Q

The price elasticity of demand will

A

always be negative

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9
Q

Elastic Demand

A

Ed > 1

Change in Qd > Change in Price

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10
Q

Inelastic demand

A

Ed < 1

Percent change in Qd < Percent change in Price

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11
Q

Perfect inelastic demand curve means

A

prices change will not cause demand changes at all

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12
Q

Unit Elastic Demand

A

Ed = 1

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13
Q

Total Revenue

A

Price * Quantity

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14
Q

In elastic regions of the demand curve

% change Quantity > % Change Price

A

>

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15
Q

If price goes up…..

A

quantity goes down

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16
Q

A way to tell the elasticity based on how the price and total revenue are changing

A

Total Revenue Test

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17
Q

elastic demand

If you increase the price..

A

total revenue will decrease

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18
Q

elastic demand

If you decrease the price..

A

total revenue will increase

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19
Q

In inelastic regions of the demand curve

Percent change in Quantity > Percent change in Price

A
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20
Q

inelastic demand

if you increase the price

A

total revenue will increase

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21
Q

if you decrease the price

A

total revenue will decrease

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22
Q

At unit-elasticity…

A

total revenue is maximized

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23
Q

Demand is more elastic when (2)

A

substitutes are available

proportion of income is larger

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24
Q

The more a good considered to be a luxury,

A

the more elastic the demand is

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25
Q

The more time one has to adjust,

A

the most elastic the demand curve becomes

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26
Q

a measure of the effect of a change in the price of one product on the quantity demanded of another

A

Cross-Price elasticity of Demand

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27
Q

Formula for Cross elasticity of Demand

A

(Percentage change in Quantity Demanded of Product X/(Percentage Change in Price of Product Y)

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28
Q

Cross-Price elasticity of demand measures responsiveness of

A

purchases of one good to change in the price of another good

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29
Q

___ goods if elasticity is positive

A

Substitute

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30
Q

___ goods if elasticity is negative

A

Complement

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31
Q

___ goods if elasticity is 0

A

Independent

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32
Q

A measure of how responsive demand is to a change in consumer income

A

Income elasticity of Demand

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33
Q

Normal goods if elasticity is

A

positive

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34
Q

Inferior goods if elasticity is

A

negative

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35
Q

Elasticity of Supply formula

A

Es = (Percentage Change in Quantity Supplied of Product X)/(Percentage Change in Price of Product X)

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36
Q

Primary determinant of elasticity of supply

A

Time

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37
Q

No time to adjust

A

Immediate market period

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38
Q

Some time to adjust

A

Short run

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39
Q

Enough time to adjust

A

Long run (Most elastic)

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40
Q

Elasticity formula

A

% Change Quantity / % Change in Price

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41
Q

The satisfaction or happiness received from the consumption of goods and services

A

Utility

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42
Q

Why do people make the choices they do?

A

Decision making

To maximize utility

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43
Q

The additional satisfaction or happiness received from the consumption of goods and services

A

Marginal Utility

44
Q

Marginal utility of consumption of a good or service becomes smaller with each extra unit that is consumed in a given time period

A

The Law of Diminishing Marginal Utility

45
Q

The process by obtaining the greatest level of overall satisfaction or happiness from consuming goods and services, subject to consumers preferences, incomes, and prices

A

Utility Maximization

46
Q

Decision making process assumptions

A

Rational behavior
Ranked preferences
Limited income
Prices

47
Q

The idea that consumers maximize their utility when they allocate their limited incomes so that the marginal utility per dollar spent on each of their final choices in a bundle is equal

A

Equal Marginal Principle

48
Q

Equal Marginal Principle formula

A

MUa/Pa = MUb/Pb

49
Q

A monetary payment made by individuals, firms, and government for the goods of others

50
Q

2 types of inputs we use

A

capital

labor

51
Q

opportunity costs of using an owned resource, the cost for which no monetary payment is explicitly made

52
Q

Economic cost

A

Explicit and implicit

53
Q

Economic profit is lower than

A

accounting profit because there are more costs

54
Q

Accounting profit

A

total revenue - explicit costs

55
Q

Economic profit

A

total revenue - all costs

56
Q

a time period in which one input is fixed but the other inputs can be changed

57
Q

the total amount of output produced with a given amount of resources

A

total product

58
Q

the change in total product divided by the change in labor

A

Marginal Product

59
Q

the total product divided by the number of units of labor, the average amount produced per unit of resource

A

Average product

60
Q

a characteristic of production whereby the MP of the next unit of a variable resource utilized Is greater than that of the previous variable resource. when we increase labor…

A

Increasing marginal returns

61
Q

a characteristic of production whereby the marginal product of the next unit of a variable resource utilized is less than that of the previous variable resource

A

Diminishing marginal returns

62
Q

constant horizontal line

A

total fixed cost

63
Q

costs that change who the amount of output produced, increasing as production increases and decreasing as production decreases. Increase on graph

A

Variable costs

64
Q

the sum of fixed and variable costs of production. Increasing
Capital is fixed and labor can change

A

Total costs

65
Q

total product/labor

A

Average product

66
Q

change in total product/change in labor

A

marginal product

67
Q

Total fixed cost divided by the amount of output produced

A

average fixed costs

68
Q

total variable cost divided by the amount of output produced

A

Average variable costs

69
Q

AFC curve is always diminishing as we

A

increase total output (quantity)

70
Q

AVC will

A

decrease then increase again

71
Q

Perfect competition characteristics

A 
large number of sellers
large number of buyers
standardized product
price takers
easy entry and exit
72
Q

Examples of perfect competition

A

agriculture
gas stations
dry cleaning

73
Q

Firms take or accept the market price and have no ability to influence that price

A

Price takers

74
Q

The change in a firm’s total revenue that results from a 1 unit change in output

A

Marginal Revenue

75
Q

Marginal Revenue formula

A

Change in Total Revenue/Change in Output

76
Q

Revenue per unit sold

A

Average Revenue

77
Q

average revenue formula

A

total revenue/quantity

78
Q

Only in perfect competition

__ = ___ = __

A

Price
Marginal Revenue
Average Revenue

79
Q

Set their output level where marginal revenue = marginal cost, where the curves intersect, profit maximizing point

A

Operations in the short run

80
Q

What happens if we increase the demand curve?

A

Price goes up, new price set in the market, marginal revenue will go up because each unit can be sold at a higher price

81
Q

the level of profit that occurs when total revenue is greater than total cost

A

Economic Profit

82
Q

Economic profit when

83
Q

Normal profit when

84
Q

How to find the profit amount

85
Q

As long as you are covering your variable costs then

A

you should stay in business

86
Q

the price below which a firm will choose not to operate in the short-run

A

Shutdown point

87
Q

A supply curve that represents the short-run relationship between price and quantity supplied

A

Short-run supply curve

88
Q

An industry in which the firms’ cost structure do not vary with changes in production

A

Constant-Cost Industry

89
Q

A supply curve that represents the long-run relationship between price and quantity supplied

A

Long-run supply curve

90
Q

In increasing cost industry, long run supply curve slopes

91
Q

in increasing cost industry, the cost of production

A

rises with expanded output

92
Q

in decreasing cost industry, long run supply curve slopes

93
Q

in decreasing cost industry, the cost of production

A

falls with expanded output

94
Q

Pure Monopoly characteristics

A

Single seller
Product has no close substitutes
Price makers
Barriers to entry

95
Q

The ability of a monopoly to influence prices by controlling the quantities that it produces in a market

A

Monopoly Power

96
Q

Monopolies get their power from

A

a variety of sources

97
Q

barriers to entry

A

copyright, patents, location, ownership of resources

98
Q

The change in total revenue that results from 1-unit change in output

A

Marginal Revenue

99
Q

Marginal Revenue formula

A

change in total revenue / change in quantity

100
Q

If a monopoly wants to increase its quantity, it must

A

lower the price for every unit it sells

101
Q

Do pure monopolies always make an economic profit?

102
Q

The idea that a monopolist can increase its revenue by charging different people different prices

A

Price Discrimination

103
Q

An industry in which economies of scale are so extensive that the market is better served by a single firm

A

Regulation

104
Q

The profit-maximizing price that will result from an unregulated monopolistic market

A

Unregulated Monopoly Price

105
Q

A regulated price that is equal to the average total cost of production

A

Regulated Normal Profit Price

106
Q

A regulated price that is equal to the marginal cost of production

A

Regulated Competitive Price

EC 201 (5 decks)

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