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CPA BEC > Microecon 1.01 - 1.07 > Flashcards

Microecon 1.01 - 1.07 Flashcards

1
Q

Price Elasticity of Demand (ED) formula

A

% change in Quantity Demanded/% change in price

Demand curve slopes down

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2
Q

When is demand elastic?

A

If elasticity of demand (ED) is greater than 1, total revenue will decline if the price is increased
Ex. Automobile

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3
Q

When is demand inelastic?

A

If elasticity of demand (ED) is less than 1, total revenue will increase if the price is increased
Ex. table salt

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4
Q

When is demand unit elastic (unitary)?

A

If elasticity of demand (ED) is equal to 1, total revenue is not sensitive to price changes

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5
Q

Income elasticity of demand formula

A

% change in quantity demanded/% change in income

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6
Q

positive income elasticity example good?

A

It is a normal good. New cars. As income increases quantity demanded for new cars increases

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7
Q

Negative income elasticity example?

A

It is inferior good. Used cars. income increases quantity demanded for used cars decreases

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8
Q

Arc method Elasticity of demand

A

change in quantity demanded/average quantity demanded
________________________________
Change in price/average price

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9
Q

Cross-elasticity of demand formula

A

% change in the quantity of demanded for product X
__________________________________________
% change in the price of product Y

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10
Q

Cross elasticity substitutes?

A

cross elasticity is a positive number. Price of butter increases, quantity demanded for margarine increases

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11
Q

Cross elasticity complements?

A

negative number. Price of chips increases quantity demanded for salsa decreases

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12
Q

(Supply Curve)Economists would say that when higher prices……..is higher

A

Quantity supplied

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13
Q

Changes in supply curve where quantity supplied becomes larger for each and every price

A

the supply curve shifts outward or to the right

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14
Q

Changes in the supply curve where quantity supplied becomes smaller for each and everyprice

A

the supply curve shifts inward, to left

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15
Q

Direct relationship supply curve factors

A 
Increases in these factors cause outward (supply increase)
number of producers 
Government subsidies
Price expectation
reductions in costs of production
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16
Q

Inverse relationship supply curve factors

A

Cause inward shift.
increases in production costs
Prices of other products

17
Q

Price elasticity of supply (ES) formula

A

% change in price

18
Q

Market Equilibrium

A

point at which demand and supply curve cross.

19
Q

quantity demanded = quantity supplied

A

equilibrium price

20
Q

Price ceiling on equilibrium

A

quantity demanded will exceed quantity supplied. Shortage of goods results

21
Q

Price floor on equalibrium

A

quantity supplied will exceed quantity demanded resulting in surplus of goods. floor line is always above price ceiling line

22
Q

increasing returns of scale

A

Output increases by a greater proportion > 1.0

23
Q

Constant Returns to scale

A

Output increases in same proportion = 1

24
Q

Decreasing returns to scale

A

Output increases by a smaller proportion < 1

25
Q

returns to scale formula

A

% increase in output
_______________
% increase in input

26
Q

Marginal Cost

A

The increase in cost that results from producing one extra unit.

27
Q

Marginal Revenue

A

the change in total revenue associated with the sale of one more unit of output

28
Q

Marginal Revenue product

A

the increase in total revenue received by the addition of one additional unit of an input or resource

29
Q

Marginal propensity to consume MPC

A

the % of the next dollar of income that the consumer would be expected to spend
Change in consumption/change in income

30
Q

Marginal propensity to save MPS

A

the % of the next dollar that the consumer would be expected to save
change in savings/change in income

31
Q

Perfect Competition conditions

A

Large number of sellers
All firms sell identical product (wheat, corn)
There is no non-price competition (no advertising)
Firms may enter or exit market easily
Each firm has perfectly elastic (horizontal)

32
Q

Pure monopoly

A

one producer
no substitutes
Demand curve is vertical

33
Q

Monopoly laws

A

Sherman act 1890
Clayton act 1914
The robison patman act 1936
the cellar Kefauver act 1950

34
Q

Monopolistic competition

A

a lot of sellers
firms sell similar products
demand curve is slightly downward

35
Q

Oligopoly

A 
Small number of large sellers
barriers to enter
non-price competition
the firms demand curve in kinked 
oil industry

CPA BEC (4 decks)

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