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Microeconomics > II.A 1-6 > Flashcards

II.A 1-6 Flashcards

1
Q

what is demand?

A

the want to purchase goods or services

-people must be willing and able to purchase a good service

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2
Q

the law of demand states that
as the price of good ____, the quantity demanded ______
(two sentences from this)

A
  1. as the price of good increases, the quantity demanded decreases
  2. as the price of good decreases, the quantity demanded increases
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3
Q

what type of relationship is the law of demand?

A

inverse

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4
Q

demand vs. quantity demanded?

A

demand-willingness and ability to buy

*quantity demanded- the # of units purchased

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5
Q

law of diminishing marginal utility

A

as a person consumes additional units of a good, eventually the utility gained from each additional unit of the good decreases

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6
Q

utilty

A

the amount of satisfaction for and object

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7
Q

the more utility you get from a good the higher the price you are willing to pay for it. True?

A

true!

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8
Q

what is the difference in a change in demand and a change in quantity demanded?

A
  1. change in demand- the physical movement of the whole demand line
  2. a change in the point of the demand line
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9
Q

what are the 6 factors that shift the demand curve?

A
  1. income
  2. substitutes
  3. complements
  4. preferences
  5. number of buyers
  6. expectations of future price change
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10
Q

as the number of buyers increase, the demand for a good _____

A

increases

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11
Q

normal good

A

the demand for normal goods rises as income rises and falls as income falls

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12
Q

inferior good

A

the demand for inferior goods rises as income falls and falls when income rises

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13
Q

neutral goods

A

the demand for neutral goods remains the same as income rises and falls

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14
Q

why is the demand curve downward sloping? (3 reasons)

A
  1. income effect-if a product’s price falls, the purchasing power of a consumer will increase, and therefore, there will be greater quantity demanded at lower prices; the inverse (higher prices—>less quantity demanded) is also true.
  2. Substitution effect - if the product price is lower, consumers will shift from purchasing a substitute (a similar product) to buying more of this particular product, therefore, the quantity demanded is higher at lower prices.
  3. Diminishing MU - the more additional units a consumer buys of a good, the less marginal utility they receive from it (they are less happy with buying each new one). So to make them buy more of what they are already buying, you have to lower the price.
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15
Q

when you are talking about price you are talking about….

A

change in quantity demanded

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16
Q

supply

A

willingness and ability to produce something at a given range of prices

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17
Q

law of supply
“as prices _____ the quantity supplied _____”
(2 possible outcomes)

A
  1. as prices rise, the quantity supplied increases

2. as prices fall, the quantity supplied decreases

18
Q

what changes the supply curve to the left or right? (7 things)

A
  1. cost of inputs
  2. technology (new machines)
  3. productivity (efficiency increases)
  4. taxes and subsidies
  5. expectations of future price change
  6. govt regulations
  7. number of sellers
19
Q

price ceiling

A

maximum legal price a seller can charge for a product

-goal: make affordable by keeping price from reaching equilibrium

20
Q

price floor

A

minimum legal price a seller can sell a product.

-goal: Keep price high by keeping price from falling to equilibrium

21
Q

allocatively efficient

A

society is properly using their resources

social optimal

22
Q

what do price floors and ceilings do to how efficient a market is?

A

it makes deadweight loss

23
Q

how do you find the elasticity for demand?

A

%change in quantity demanded/ %change in price

24
Q

if the result of the equation to find elasticity for demand is…
Ed > 1 =…
Ed less than one …
Ed equal to one…

A
  1. elastic
  2. inelastic
  3. unit elastic
25
Q

how do you find the elasticity for supply?

A

%change in Quantity supplied/ %change in price

26
Q

if the result of the equation to find elasticity for supply is…
Es > 1 =…
Es less than 1…
Es equal to 1

A
  1. elastic
  2. inelastic
  3. unit elastic
27
Q

how do you find income elasticity?

A

%change in quantity demanded/ %change in income

28
Q

if the result of the equation to find income elasticity is…
Ei > 0 = positive…
Ei less than zero or negative….

A
  1. normal good

2. inferior good

29
Q

what is the equation to find cross-price elasticity?

A

%change in quantity demanded of good x/ %change in price of good y

30
Q

if the result of the equation to find cross-price elasticity is…
Exy > 0 = positive =….
Exy less than zero or negative…

A
  1. substitutes

2. complements

31
Q

how do you find total revenue?

A

price * quantity

32
Q

TOTAL REVENUE TEST

  1. P increases, TR increases =…
  2. P decreases, TR decreases =…
  3. P increases, TR decreases =…
  4. P decreases, TR increases =….
A
  1. inelastic
  2. inelastic
  3. elastic
  4. elastic
33
Q

what are the determinants of inelastic demand? (7)

A
  • elasticity coefficient less than 1
  • no/ few substitutes
  • small percent of income
  • no time to shop
  • need
  • price increases causes TR to increase
  • price decreases causes TR to decrease
34
Q

what are the determinants of elastic demand (7)

A
  • elasticity coefficient >1
  • many substitutes
  • big % of income
  • time to shop around
  • want or luxury
  • P increases, TR decreases
  • P decreases, TR increases
35
Q

elasticity

A

how sensitive quantity is to a change in price

36
Q

elasticity of demand

A

measurement of consumers’ responsiveness to a change in price

37
Q

inelastic demand

A

insensitive to a change in price

-if price increases, quantity demanded will fall only a little per se because people still need the certain good

38
Q

elastic demand

A

quantity demanded is sensitive to a change in price
-if price increases, quantity demanded will fall a lot per se because people don’t really need this good and it is more of a luxury

39
Q

why impose a excise tax?

A
  • discourage consumption
  • redistributive goals
  • reduce negative externality
40
Q

what does tax burden depend on?

A

the elasticity of supply or demand

41
Q

what does a per unit tax do?

A

increases the marginal cost of producing each product

Microeconomics (15 decks)

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