Midterm 1 Flashcards
change in price of good
leads to movement along demand curve but not shift
decrease in input price
increase in supply
tech improvement
increase in supply
increase in gov regulation
decrease in supply
increase in # of firms
increase in supply
excise tax
tax on each unit of output sold; shifts supply up by amount of tax
ad-valorem
percentage tax; supply goes up by percentage
surplus
Qs - Qd at specific price
if surplus
sellers cut the price to reduce surplus
shortage
Qd - Qs of specific price
if shortage
raise price
consumer expenditure
area below CS
price ceiling must be
below equilibrium price
non-binding price ceiling can become binding by
increasing demand and decreasing supply
law of demand
as price falls demand rises
to find inverse equation
switch variables and solve for y
price floor must be
above equilibrium price
if coefficient in front Py is -
they are complements
if coefficient in front of I is -
the first good is inferior
quantity restriction has same impact as
price floor
a tax always
shrinks the market
full economic price
quantity traded into demand function
total cost to gov
surplus or shortage * price
increase in PS due to new producers entering market
area of E
increase in PS to producers already in market
area of D
taxes on sellers
decrease equilibrium quantity, increase buyers price, decreases sellers received price
CS with no tax
ABC
CS with tax
A
tax revenue
BD (tax * Q after tax)
PS with no tax
DEF
PS with tax
F
tax reduces total surplus by
deadweight loss
base of deadweight triangle
amount of per unit tax
tax reduces CS by
BC
tax reduces PS by
DE
demand is inelastic when
elasticity is between 0 and 1
if elastic firm
decrease price to increase rev
%∆Qx
Q2-Q1/Q1
%∆Px
P2-P1/P1
if own price elasticity is positive
we have supply function
if own price elasticity is negative
we have demand function
if cross price elasticity is negative
goods x and y are complements
if cross price elasticity is positive
goods are substitutes
income elasticity is negative
inferior good
income elasticity positive
normal good
|E| > 1
demand is flat; slope is small
|E|< 1
demand is steep; slope is big
|E|=1
unitary demand is neither steep nor flat
|E|= 0
perfectly inelastic; vertical demand
|E|= infinity
perfectly elastic horizontal
price elasticity is higher for
luxuries than necessities; narrowly defined goods than broad; long run
∆Qx/∆Px
slope/# in front of Px
