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Economics > Midterm 2 > Flashcards

Midterm 2 Flashcards

1
Q

What is Price elasticity of Demand?

A

Elasticity of Total Revenue

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2
Q

Total Revenue = ?

A

Price x Quantity

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3
Q

%^Q = ?

A

Q1 - Q0 / Q0

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4
Q

%^P = ?

A

P1 - P0 / P0

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5
Q

When demand for a product is elastic and price goes down what happens to TR?

A

TR goes UP

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6
Q

When demand for a product is elastic and price goes up what happens to TR?

A

TR goes DOWN

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7
Q

When demand is inelastic and price goes up what happens to TR?

A

TR goes UP

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8
Q

When demand is inelastic and price goes down what happens to TR?

A

TR goes DOWN

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9
Q

What are Determinants of elasticity of Demand

A

-Existence of close substitutes
-% Income spent on a product
-Luxuries and Necessities
-Time

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10
Q

What happens to elasticity if there are more substitutes?

A

It will be more elastic due to the higher demand for the product

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11
Q

Necessities make demand more elastic or inelastic?

A

Inelastic

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12
Q

Luxuries make demand more elastic or inelastic?

A

Elastic

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13
Q

What can time do to a products elasticity?

A

Over time a inelastic product can become elastic

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14
Q

If Exy > 0 what is it caused by

A

Substitutes

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15
Q

If Exy < 0 what is it caused by

A

Complements

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16
Q

If Exy = 0 what is it caused by

A

It not related

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17
Q

Exy stands for?

A

% ^ Qd for X divided by % ^ Price of Y

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18
Q

The Demand curve if demand is elastic is more what?

A

Relatively Horizontal

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19
Q

The Demand curve if demand is inelastic is more what?

A

Relatively Vertical

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20
Q

The Demand curve id demand is unitary elastic is what?

A

Not to vertical but not too horizontal

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21
Q

If Demand is perfectly inelastic then the demand curve is what?

A

Perfectly Vertical

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22
Q

If Demand is perfectly elastic then the demand curve is what?

A

Perfectly Horizontal

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23
Q

What is Income elasticity of Demand?

A

The responsiveness of Qd will change in income

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24
Q

How do you determine Income elasticity?

A

Ei = % ^ in Qd divided by % ^ in income

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25
Q

If Ei > 0 what kind of goods is the product?

A

Normal Goods

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26
Q

If Ei < 0 what kind of goods is the product?

A

Inferior Goods

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27
Q

What is Price Elasticity of Supply?

A

Responsiveness of Qs to a change in price of the same product.

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28
Q

If % ^ of Qs > % ^ of P then?

A

Supply is elastic and Es > 1

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29
Q

If % ^ of Qs < % ^ of P then?

A

Supply is inelastic and Es < 1

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30
Q

If % ^ of Qs = % ^ of P then?

A

Supply is Unitary elastic and Es = 1

31
Q

What is the main Determinant of Supply?

A

Time (The more time the more elastic)

32
Q

Look at Elasticity of Tax Incidence

A

Look at Elasticity of Tax Incidence

33
Q

What is Marginal Utility?

A

The additional satisfaction of consuming 1 more unit of a product?

34
Q

The more tacos you eat what happens to Marginal Utility?

A

Marginal Utility will gradually go up until it hits a point where its no longer satisfying to eat more tacos and it will begin to go back down?

35
Q

Why should consumers allocate their income?

A

So that the last dollar spent can yield the same level utility.

36
Q

LOOK AT TABLE ON PAGE 177

A

LOOK AT TABLE ON PAGE 177

37
Q

What causes a negative slope of the individual demand curve?

A

-Substitution effect
-Income
-Law of diminishing MU

38
Q

If Price goes down what happens to purchasing power of Income?

A

Purchasing power of income goes UP

39
Q

What is a firm?

A

A institution that hires factors of production to produce various goods and services?

40
Q

What is a plant?

A

A physical facility such as a factory that is used to produce and distribute goods.

41
Q

What is a industry?

A

A group of firms that produce similar products.

42
Q

What is economic cost?

A

The value of input to produce output

43
Q

What determines the amount of goods and services that producers are willing to produce?

A

It depends on the price of product and the cost of production

44
Q

What are the two different types of costs when it comes to Economic cost?

A

Explicit cost
Implicit cost

45
Q

What is explicit cost?

A

The payments by the firm to outsiders such as raw materials and wages

46
Q

What is implicit cost?

A

The opportunity cost of a firm using resources in producing output

47
Q

Accounting profit = ?

A

Total Revenue - Explicit Cost

48
Q

Economic Profit = ?

A

Total Revenue - (Explicit = Implicit cost including a normal profit)

49
Q

What does Short Run mean?

A

Short run is a time frame where there are some fixed features of production and a time that not long enough for a firm to change the planned capacity.

50
Q

What does Long Run mean?

A

Long run is a time frame where all factors of production are a variable

51
Q

What is the variable factor?

A

Labour

52
Q

What is Total Product (TP)

A

All output that could be produced but all units of input during given time

53
Q

What is Average product (AP)

A

How much output on average is being produced per unit of input

54
Q

How do you calculate AP

A

TP / Labour

55
Q

What is Marginal Product (MP)

A

The additional units of output that are produced by one more unit of input

56
Q

How do you calculate MP

A

Change in TP / Change in labour

57
Q

What happens to AP when MP is higher than it?

A

MP pulls AP up

58
Q

What happens to AP when MP is lower than it?

A

MP pulls AP down

59
Q

What is the Law of Diminishing Marginal Product?

A

As more units of a variable factor are added to fix factors of production (land and capital) after a certain point Marginal product of the variable factor diminishes because each additional edition of the variable factor will have smaller and smaller units of the fixed factor.

60
Q

What are the two types of Total cost?

A

Total fixed cost
Total variable cost

61
Q

What is total fixed cost?

A

The cost that fixed regardless of the level of output

62
Q

What is total variable cost?

A

The cost that increases as production increases

63
Q

LOOK AT GRAPHS ABOUT TC, TVC and TFC

A

LOOK AT GRAPHS ABOUT TC, TVC and TFC

64
Q

What is Marginal Cost?

A

Additional cost of producing one more unit of output

65
Q

Marginal Cost cuts both ATC and AVC where?

A

At their minimum point

66
Q

MP and MC do what in their graph forms?

A

Mirror each other (Refer to Notes)

67
Q

What happens to firm in Long Run?

A

Firms will adjust factors of output to maximize production

68
Q

The long run cost curve is a envelope of what?

A

Short Run average total cost curves

69
Q

What happens the minimum point of ATC in Long run

A

A new firm is added

70
Q

What happens in the Economies of scale state in the long run AC curve?

A

% ^ in output > % ^ in input

71
Q

What happens in the Diseconomies of scale state in the long run AC curve?

A

% ^ in output < % ^ in input

72
Q

Economies of scale happens when?

A

When the AC is decreasing as output is increasing

73
Q

What are some factors that explain economies of scale?

A

Division of Labor
Specialization
Managerial specialization
Use of efficient capital
Research, development and advertising

74
Q

What is constant return to scale?

A

% ^ in output = % ^ in input

Economics (6 decks)

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