[MICRO] 02 - Demand & Supply Applications and Elasticity Flashcards

1
Q

Definition: Price Rationing

A

The process by which the market system allocates goods and services to consumers when quantity demanded exceeds quantity supplied (e.g. Painting or Lobsters). Price rationing can be induced by governments or private firms.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Definition: Price Ceiling

A

A maximum price that sellers may charge for a good, usually set by the government. It occurs when the government puts a legal limit on how high the price of a product can be. In order for it to be effective it must be set below market equilibrium.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Possible results of a Price Ceiling (5)

A

There are five ways to distribute the resulting low supply of the product without raising the price:

1) Lottery
2) Black Market
3) First come first serve
4) Historical Use
5) Coupons

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Definition: Price Floor

A

The lowest legal price a commodity can be sold at (e.g. Used often in agriculture to protect farmers)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Definition: Minimum wage

A

A price floor set under the price of labour

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Definition: Consumer Surplus

A

The difference between the maximum amount a person is willing to pay for a good and its current market price. On the demand curve it is the area between maximum price and price equilibrium (triangular)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Definition: Producer Surplus

A

The difference between the current market price and the full cost of production for the firm. On the supply curve it is the area between minimum price and price equilibrium. (Triangular)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Definition: Deadweight Loss

A

The net loss of producer and consumer surplus from underproduction or overproduction.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Definition: Elasticity

A

The ratio of the percentage change in one varaible to the percentage change in another variable.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Definition: Price Elasticity of Demand

A

%change in quantity demanded/%change in price. It measures the responsiveness of demand to changes in price.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Definition: Unitary Elasticity

A

The quantity demanded changes as much as the pruce does. Value = -1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Definition: Elastic Demand

A

The quantity demanded changes more than the price does. Value > 1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Definition: Inelastic Demand

A

the quantity demanded changes less than the price does. Value < 1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Definition: Perfectly Elastic Demand

A

Demand in which quantity drops to zero at the slightest increase in price. (mainly theoretical)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Definition: Perfectly Inelastic Demand

A

Demand in which quantity demanded does not respond at all to a change in price (e.g. Medicine). Value = 0

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Definition: Income Elasticity of Demand

A

%change in quantity demanded/%change in income. It measures the responsiveness of demand to changes in income.

17
Q

Definition: Cross-Price Elasticity of Demand

A

%change in quantity of Y demanded/%change in price of X. It measures the response of the quantity of one good demanded to a change of the price of <b>another</b> good.

18
Q

Definition: Elasticity of Supply

A

%change in quantity supplied/%change in price. It measures the response of quantity of a good supplied to a change in price of that good. Likely to be positive in the goods and services market.

19
Q

Definition: Elasticity of Labour Supply

A

%change in quantity of labour supplied/%change in the wage rate. It measures the response of labour supplied to a change in the price of labour.

20
Q

Effect of Inelastic Demand on Total Revenue

A

Total Revenue Increases

21
Q

Effect of Elastic Demand on Total Revenue

A

Total Revenue Decreases