FULL REVIEW Flashcards
When income increases, the budget line ____
When income increases, the budget line SHIFTS OUTWARDS
an Engel curve describes how _______________
an Engel curve describes how household expenditure on a particular good or service varies with household income.
What is the equation for PED?
% change in Qd / % change in P
How is PED classified?
0 = perfectly inelastic
0-1 = inelastic demand
1 = unit elastic
+1 = elastic demand
infinity = perfectly elastic demand
What is the equation of YED?
% change in Qd / % change in Y
How is YED classified?
<0 = Inferior good
0-1 = Normal good, Necessity
+1 = Normal good, Luxury
What is the equation for XED?
% change in Qd of A / % change in price of B
What is the impact of a price increase on the SE and IE?
PRICE INCREASE:
SE = negative
if good inferior
IE = negative
if good normal
IE = positive
If a goods price increases, what is the SE?
NEGATIVE
What is a giffen good?
the good is inferior (income effect of a price increase is positive) and the income effect is larger in absolute value than the substitution effect.
IE > SE
What is the impact of a wage INCREASE on the SE and IE?
WAGE INCREASE:
SE = negative
if good (leisure) is inferior
IE = negative
if good (leisure) is normal
IE = positive
Where does a negative SE or IE point?
TO THE LEFT!!
consume LESS!!
less goods.. or less leisure, does not matter!
What is specific about the short run?
K is fixed!!
Only L can change to change output!!
What is the equation to calculate MC? (using MPL?)
MC = w / MPL
MC curve crosses the AC curve at _______
AC’s LOWEST POINT
