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
What is the slope of an indifference curve named?
MRS - Marginal rate of substitution
What is the slope of a budget line named?
MRT - Marginal rate of transformation
What is the slope of an isoquant called?
MRTS - Marginal rate of technical substitution
What is the equation of an isoquant?
- MPL / MPK
What is the equation of an ISOCOST?
- w / r
What cost is considered in the short run?
Both FC and VC, however FC is SUNK!
What cost is considered in the long run?
ONLY VC,
we consider FC avoidable in the long run as the firm can sufficiently vary its inputs
What are the 3 rules to minimize cost?
- lowest isocost rule
- tangency rule
- last-dollar rule
