microeconomics exam two Flashcards
what is comparative statics?
studying how demand and supply curves shift
what directions do increases and decreases go?
increase : right
decrease : left
what is elasticity?
a measure of responsiveness of one variable to changes in another
OR
if x changes, what happens to y?
what is a normal good?
a good for which demand increases when income increases, and demand decreases when income decreases
what is an inferior good?
a good for which demand decreases when income increases, and demand increases when income decreases
what is a substitute?
goods that perform a similar function or satisfy a similar human desire
what is a complement?
goods that are more valuable when consumed together
what is being ineleastic?
when the absolute value of a goods price elasticity of demand is less than one.
what is being elastic?
when the absolute value of a goods price elasticity of demand is greater than one.
how does elasticity affect the graphs?
- if E is greater than 1, ELASTIC
- if E is equal to infinity, PERFECTLY ELASTIC
- if E is less than 1, INELASTIC
- if E is less than 0, PERFECTLY INELASTIC
what is the equation for percent change?
new - old
old
what is the equation for cross price elasticity of demand?
percent change of quantity
percent change of price
what is the equation for income elasticity of demand?
percent change of quantity
percent change of income
what is consumer surplus?
a measure of the gain that the buyer experiences from the exchange
what is producer surplus?
a measure of the gain that the seller experiences from the exchange
what is total gain from trade?
consumer surplus + producer surplus
what is equilibrium?
a situation in which no individual wants to change the behavior
what is equilibrium price and demand?
market clearing!
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 (lost trade)
what is economic efficiency?
a situation in which all possible gains are being made
what is an entrepreneur?
a person who takes advantage of a profit opportunity in the market
what is a price control law?
a law that mandates what prices buyers and sellers must trade at
what is a price ceiling?
a law that prohibits people from trading at a price above the legal maximum
what is a price floor?
a law that prohibits people from trading at a price below the legal minimum
