Exam 2 Flashcards
1
Q
A measure of how responsive one variable is to a change in another variable
A
elasticity
2
Q
All elasticities are
A
percentage changes
3
Q
Elasticity general formula
A
Percent Change in Quantity / Percent Change in Price
4
Q
Elasticity formula for Consumers (demand)
A
Percentage change in Quantity / Percentage change in Price
5
Q
Calculated as the percentage change of quantity demanded divided by the percentage change in price
A
Price of Elasticity of Demand
6
Q
Price of Elasticity of Demand formula
A
%△Qd = ((Q2 - Q1) / Q1) * 100 %△P = ((P2-P1)/P1) * 100
7
Q
If the price decreases by 1% the quantity demanded will
A
increase by -2.5%
8
Q
The price elasticity of demand will
A
always be negative
9
Q
Elastic Demand
A
Ed > 1
Change in Qd > Change in Price
10
Q
Inelastic demand
A
Ed < 1
Percent change in Qd < Percent change in Price
11
Q
Perfect inelastic demand curve means
A
prices change will not cause demand changes at all
12
Q
Unit Elastic Demand
A
Ed = 1
13
Q
Total Revenue
A
Price * Quantity
14
Q
In elastic regions of the demand curve
% change Quantity > % Change Price
A
>
15
Q
If price goes up…..
A
quantity goes down
16
Q
A way to tell the elasticity based on how the price and total revenue are changing
A
Total Revenue Test
17
Q
elastic demand
If you increase the price..
A
total revenue will decrease
18
Q
elastic demand
If you decrease the price..
A
total revenue will increase
19
Q
In inelastic regions of the demand curve
Percent change in Quantity > Percent change in Price
A
20
Q
inelastic demand
if you increase the price
A
total revenue will increase
21
Q
if you decrease the price
A
total revenue will decrease
22
Q
At unit-elasticity…
A
total revenue is maximized
23
Q
Demand is more elastic when (2)
A
substitutes are available
proportion of income is larger
24
Q
The more a good considered to be a luxury,
A
the more elastic the demand is
25
The more time one has to adjust,
the most elastic the demand curve becomes
26
a measure of the effect of a change in the price of one product on the quantity demanded of another
Cross-Price elasticity of Demand
27
Formula for Cross elasticity of Demand
(Percentage change in Quantity Demanded of Product X/(Percentage Change in Price of Product Y)
28
Cross-Price elasticity of demand measures responsiveness of
purchases of one good to change in the price of another good
29
___ goods if elasticity is positive
Substitute
30
___ goods if elasticity is negative
Complement
31
___ goods if elasticity is 0
Independent
32
A measure of how responsive demand is to a change in consumer income
Income elasticity of Demand
33
Normal goods if elasticity is
positive
34
Inferior goods if elasticity is
negative
35
Elasticity of Supply formula
Es = (Percentage Change in Quantity Supplied of Product X)/(Percentage Change in Price of Product X)
36
Primary determinant of elasticity of supply
Time
37
No time to adjust
Immediate market period
38
Some time to adjust
Short run
39
Enough time to adjust
Long run (Most elastic)
40
Elasticity formula
% Change Quantity / % Change in Price
41
The satisfaction or happiness received from the consumption of goods and services
Utility
42
Why do people make the choices they do?
Decision making
| To maximize utility
43
The additional satisfaction or happiness received from the consumption of goods and services
Marginal Utility
44
Marginal utility of consumption of a good or service becomes smaller with each extra unit that is consumed in a given time period
The Law of Diminishing Marginal Utility
45
The process by obtaining the greatest level of overall satisfaction or happiness from consuming goods and services, subject to consumers preferences, incomes, and prices
Utility Maximization
46
Decision making process assumptions
Rational behavior
Ranked preferences
Limited income
Prices
47
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
Equal Marginal Principle
48
Equal Marginal Principle formula
MUa/Pa = MUb/Pb
49
A monetary payment made by individuals, firms, and government for the goods of others
Explicit
50
2 types of inputs we use
capital
| labor
51
opportunity costs of using an owned resource, the cost for which no monetary payment is explicitly made
Implicit
52
Economic cost
Explicit and implicit
53
Economic profit is lower than
accounting profit because there are more costs
54
Accounting profit
total revenue - explicit costs
55
Economic profit
total revenue - all costs
56
a time period in which one input is fixed but the other inputs can be changed
Short-run
57
the total amount of output produced with a given amount of resources
total product
58
the change in total product divided by the change in labor
Marginal Product
59
the total product divided by the number of units of labor, the average amount produced per unit of resource
Average product
60
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…
Increasing marginal returns
61
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
Diminishing marginal returns
62
constant horizontal line
total fixed cost
63
costs that change who the amount of output produced, increasing as production increases and decreasing as production decreases. Increase on graph
Variable costs
64
the sum of fixed and variable costs of production. Increasing
Capital is fixed and labor can change
Total costs
65
total product/labor
Average product
66
change in total product/change in labor
marginal product
67
Total fixed cost divided by the amount of output produced
average fixed costs
68
total variable cost divided by the amount of output produced
Average variable costs
69
AFC curve is always diminishing as we
increase total output (quantity)
70
AVC will
decrease then increase again
71
Perfect competition characteristics
```
large number of sellers
large number of buyers
standardized product
price takers
easy entry and exit
```
72
Examples of perfect competition
agriculture
gas stations
dry cleaning
73
Firms take or accept the market price and have no ability to influence that price
Price takers
74
The change in a firm’s total revenue that results from a 1 unit change in output
Marginal Revenue
75
Marginal Revenue formula
Change in Total Revenue/Change in Output
76
Revenue per unit sold
Average Revenue
77
average revenue formula
total revenue/quantity
78
Only in perfect competition
__ = ___ = __
Price
Marginal Revenue
Average Revenue
79
Set their output level where marginal revenue = marginal cost, where the curves intersect, profit maximizing point
Operations in the short run
80
What happens if we increase the demand curve?
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
the level of profit that occurs when total revenue is greater than total cost
Economic Profit
82
Economic profit when
TR > TC
83
Normal profit when
TR = TC
84
How to find the profit amount
(P-ATC)*Q
85
As long as you are covering your variable costs then
you should stay in business
86
the price below which a firm will choose not to operate in the short-run
Shutdown point
87
A supply curve that represents the short-run relationship between price and quantity supplied
Short-run supply curve
88
An industry in which the firms’ cost structure do not vary with changes in production
Constant-Cost Industry
89
A supply curve that represents the long-run relationship between price and quantity supplied
Long-run supply curve
90
In increasing cost industry, long run supply curve slopes
upward
91
in increasing cost industry, the cost of production
rises with expanded output
92
in decreasing cost industry, long run supply curve slopes
downward
93
in decreasing cost industry, the cost of production
falls with expanded output
94
Pure Monopoly characteristics
Single seller
Product has no close substitutes
Price makers
Barriers to entry
95
The ability of a monopoly to influence prices by controlling the quantities that it produces in a market
Monopoly Power
96
Monopolies get their power from
a variety of sources
97
barriers to entry
copyright, patents, location, ownership of resources
98
The change in total revenue that results from 1-unit change in output
Marginal Revenue
99
Marginal Revenue formula
change in total revenue / change in quantity
100
If a monopoly wants to increase its quantity, it must
lower the price for every unit it sells
101
Do pure monopolies always make an economic profit?
no
102
The idea that a monopolist can increase its revenue by charging different people different prices
Price Discrimination
103
An industry in which economies of scale are so extensive that the market is better served by a single firm
Regulation
104
The profit-maximizing price that will result from an unregulated monopolistic market
Unregulated Monopoly Price
105
A regulated price that is equal to the average total cost of production
Regulated Normal Profit Price
106
A regulated price that is equal to the marginal cost of production
Regulated Competitive Price
