Micro Unit 2 Flashcards

1
Q

Law of Demand

A

As price goes up, quantity demanded goes down; inverse relationship between price and quantity.

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

Law of Supply

A

As price goes up, quantity supplied goes up; direct relationship between price and quantity.

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

What is the difference between change in quantity demanded and change in demand?

A

The only thing that can result in a change in quantity demanded is price, whereas a change in demand refers to the five shifters of demand.

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

5 shifters of demand

A
  1. Tastes and preferences
  2. Change in prices of related goods
  3. Change in income (disposable income)
  4. Future expectations
  5. Changes in population
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

5 shifters of supply

A
  1. Price and quantity of resources
  2. # of sellers
  3. technology
  4. actions of the government
  5. expectations of future profits
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Relationship between price and demand for substitute goods

A

Direct relationship

ex. if the price of coke goes up, the demand for pepsi will go up because people will buy the cheaper good.

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

Relationship between price and demand for compliment goods

A

Inverse relationship

ex. If the price of hot dogs increases, the demand for hot dog buns will decrease.

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

Relationship between income and demand for normal goods

A

Direct relationship

ex. as peoples incomes increase, the demand for name brand products like Dr. Pepper will increase.

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

Relationship between income and demand for inferior goods

A

Inverse relationship

ex. As incomes decrease, the demand for inferior goods like dr. thunder will increase.

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

Price ceiling

A

A maximum amount that a seller is allowed to charge for a given product. In order to have an effect, the price ceiling must be placed below the equilibrium price.

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

Price floor

A

the minimum amount sellers can charge for a product. Binding price floors go above equilibrium and result in a surplus.

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

Elasticity

A

shows how sensitive a quantity is to a change in price

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

Inelastic Demand

A

Quantity demanded is insensitive to a change in price.

Characteristics include:
- few substitutes
- necessities
- elasticity coefficient is less than one
- Demand curve is STEEPER than normal

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

Elastic Demand

A

Quantity demanded is sensitive to a change in price.

Characteristics include:
- many substitutes
- luxuries
- elasticity coefficient greater than one
- demand curve is FLATTER than normal

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

Total revenue test

A

For inelastic demand, there is a direct relationship between price and total revenue.

For elastic demand, there is an indirect relationship between price and total revenue.

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

Elasticity coefficient

A

% change in quantity/% change in price

17
Q

Cross price elasticity of demand

A

shows how sensitive a product is to a change in price of another good; can be used to determine whether two goods are substitutes or compliments.

change in Q of “a”/change in P of “b”

positive coefficient=substitute
negative coefficient=compliment

18
Q

Income elasticity of demand

A

shows sensitivity of quantity demanded to a change in income; can be used to determine whether a good is normal or inferior.

change in quantity/change in income

positive coefficient=normal
negative coefficient=inferior

19
Q

Consumer surplus

A

the difference between what you’re willing to pay and what you actually paid.

20
Q

Producer surplus

A

difference between what the seller received and what they were willing to sell for.

21
Q

Deadweight loss (DWL)

A

the lost consumer and producer surplus that is created when a market becomes inefficient.

22
Q

Excise Tax Burden

A

When the demand for a product is elastic, producers bear a majority of the tax burden.

When the demand for a product is inelastic, consumers bear a majority of the tax burden.

When the demand for a product is unit elastic, the tax burden is equally shared between consumers and producers.

23
Q

Price elasticity of supply

A

shows how sensitive producers are to a change in price; based on time limitations because producers need time to produce more products.

24
Q

Inelastic supply

A

When the supply of a product is insensitive to a change in price; steep curve

most goods are inelastic in the short run

25
Q

Elastic supply

A

When the supply of a product is insensitive to a change in price; flatter curve

Most goods have elastic supply in the long run

26
Q

utility maximization rule

A

Consumers should spend their money in a way that the marginal utility per dollar of goods equals each other.

MU/P