lessons 4 and 5 Flashcards
for midterm 2
What is comparative statics?
Studying ow supply and demand curves shift
what direction his an increase in demand and supply
increase = shift to the right
What direction is a decrease of supply and demand
decrease = shift to the left
What are the shifts of demand?
price, consumer taste, # of buyers, income, compliments, substitutes
what is an inferior good?
a good like ramen that when poor gets bought more but when incomes goes up it decreases
what is a normal good?
a good like steak that when poor gets bought less but when incomes goes it gets bought more.
What is elasticity?
A measure of the responsiveness of one variable to change in another variable
What’s is a substitute?
a good that performs similar function or satisfy a similar human desire.
What is a complement?
a good that are more valuable when consumed together.
What is cross-point elasticity of Demand?
The effect that a change in the price of one good has on the Demand for another good.
What are the shifts of the supply curve?
price, # of sellers, technology, input price, taxes and subsidies.
what do taxes do to suppliers.
shifts to the left because it takes away from the business profits.
what do subsides do to suppliers.
shifts to the right because it gives government money to the business.
what is the formula for elasticity?
Ey,x = percentage change of Y/ percentage change of X
what is the formula for own-price elasticity of demand?
the responsiveness of the quantity demand/ by the price of the good (will always be negative)
what is the formula for own-price elasticity of supply?
the responsiveness of the quantity supplied/ by the price of the good (will always be positive)
What do elasticity classifies as inelastic?
When the absolute value of a good’s price is less than 1
What do elasticity classifies as elastic?
When the absolute value of a good’s price is greater than 1
how do you calculate TR (total revenue)
TR = P * Q
when |E|= 0 what does it classify as?
perfectly inelastic
when |E|=∞, what does it classify as?
perfectly elastic
what is the demand curve made up of?
the set of maximum buying prices.
what is the supply curve made up of?
the set of minimum buying prices.
What is consumer surplus?
the measure of the gain that the buyer experiences from an exchange.
What is producer surplus?
The measure of the gain that the seller experiences from an exchange.
What is the total gain from trade?
The sum of consumer and producer surplus.
What is a shortage?
when the quantity supplied is lower than the quantity demanded.
What is a surplus?
when the quantity demanded is lower than the quantity supplied.
What is dead weight loss?
Gains from trade that are not being made
What is economic efficiency?
A situation in which all possible gains form trade are being made.
Who is an entrepreneur?
Someone who takes advantage of profit opportunity in the market.
What is a price control law?
A law that mandates what price buyers and sellers must trade at.
What is an effective price control?
A price control law that keeps the price above or below the market-clearing price.
What is a price ceiling?
A law that prohibits people from trading at a price above a legal maximum.
What is a price floor?
A law that prohibits people from trading at a price below a legal minimum.
What is caused from a maximum price control law?
Creates shortage, benefit some consumers, harms producers, does more harm then good.
What is caused from a minimum price control law?
Creates surplus, benefit some producers and harm others, harms consumers, does more harm then good.
What is a rent control law?
A maximum price control on rental housing. creates housing shortage
What are rationing laws?
laws that restrict peoples consumption of certain goods.
What is price gouging, and price gouging laws?
Price gouging is when prices are to high. Price gouging laws are a maximum price control law.
what is the unemployment rate?
The percentage of the population that is actively looking for a job but has no work.
