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ECON.101 > midterm 2 > Flashcards

midterm 2 Flashcards

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1
Q

what is the price elasticity of demand (PED)?

A

it measures how responsive the quantity demanded is to a change in price

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2
Q

what does PED>1 indicate?

A

elastic demand

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3
Q

what does elastic demand mean?

A

consumers are very responsive to price changes (eg. luxury goods, non-essential items)

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4
Q

what does (PED<1) indicate?

A

inelastic demand

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5
Q

what does inelastic demand mean?

A

consumers are less responsive to price changes (eg.necessities)

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6
Q

what does (PED=1) indicate?

A

unitary elastic demand

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7
Q

what does unitary elastic demand mean?

A

a price change results in an equal percentage change in quantity demanded

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8
Q

what is total revenue (TR)?

A

the total amount of money received by a firm from selling its product

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9
Q

what is the equation to solve for TR?

A

TR = Price x Quantity

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10
Q

how does elastic demand impact TR?

A

lowering the price would increase TR

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11
Q

how does inelastic demand impact TR?

A

raising the price would increase TR

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12
Q

how does unitary elastic demand impact TR?

A

TR is unchanged when the price changes

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13
Q

what is cross elasticity?

A

measures how the quantity demanded of one good responds to a price change of another good

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14
Q

what does positive cross elasticity indicate?

A

goods are substitutes (eg. tea and coffee)

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15
Q

what does negative cross elasticity indicate?

A

goods are complements (eg. cars and gas)

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16
Q

what is income elasticity?

A

measures how the quantity demanded changes as consumer income changes

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17
Q

what impact do normal goods have on income elasticity?

A

positive income elasticity

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18
Q

what impact do inferior goods have on income elasticity?

A

negative income elasticity

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19
Q

what does positive income elasticity mean?

A

demand increases as income rises

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20
Q

what does negative income elasticity mean?

A

demand decreases as income rises

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21
Q

what is elasticity of supply?

A

measures how responsive the quantity supplied is to price change

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22
Q

what does an elastic supply indicate?

A

firms can easily increase production in response to price changes

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23
Q

what does an inelastic supply indicste?

A

firms find it difficult to increase production in response to price changes

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24
Q

what is allocation?

A

refers to how goods and services are distributed in the market

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25
Q

what is market allocation?

A

goods are allocated based on prices (supply and demand)

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26
Q

what is non-market allocation?

A

government or other entities control the distribution (eg. rationing)

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27
Q

what is consumer surplus?

A

the difference between what producers are willing to accept for a good and the price they actually receive

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28
Q

`what does consumer surplus represent?

A

the benefit consumers get from participating in the market

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29
Q

what equation solves for consumer surplus?

A

consumer surplus = willingness to pay - price paid

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30
Q

what is producer surplus?

A

the difference between what producers are willing to accept for a good and the price they actually receive

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31
Q

what does producer surplus represent?

A

the benefit producers receive from selling in the market

32
Q

what equation solves for producer surplus?

A

producer surplus = price received - cost of production

33
Q

how do you calculate market demand?

A

add individual demands at each price level to get the market demand

34
Q

how do you calculate market supply?

A

add individual supplies at each level to get the market supply

35
Q

when does DWL occur?

A

when the market is not in equilibrium (eg. due to price controls, taxes, monopolies, etc.)

36
Q

what does deadweight loss (DWL) represent?

A

the lost economic welfare that could have been realized if resources were allocated efficiently

37
Q

at what point is a competitive market efficient?

A

when it maximizes total surplus (consumer + market surplus)

38
Q

what does a competitive market achieve at equilibrium?

A

allocative efficiency

39
Q

what is allocative efficiency?

A

marginal benefit = marginal cost

40
Q

what is utilitarianism?

A

maximize the total wellbeing of society

41
Q

what is Rawls’ Theory of Justice?

A

focus on improving the position of the least advantaged in society

42
Q

what is fairness in rules vs fairness in outcomes?

A

debates whether fairness is about the fairness of the rules (procedural fairness) or the fairness of the outcomes (distributive fairness)

43
Q

what is a price ceiling?

A

a maximum price set by the government (eg. rent control)

44
Q

what happens if a price ceiling is set below the equilibrium price?

A

a shortage

45
Q

what is a price floor?

A

a minimum price set by the government (eg. minimum wage)

46
Q

what happens if a price floor is set above the equilibrium price?

A

a surplus

47
Q

what is a shortage

A

when demand exceeds supply

48
Q

what is a surplus?

A

when supply exceeds demand

49
Q

what is a production quota?

A

a limit on the amount of a good that can be produced

50
Q

why does canada’s milk industry exercise production quotas

A

to regulate the economy

51
Q

how do taxes impact supply and demand?

A

by increasing the cost of production or the price consumers pay

52
Q

what is tax incidence?

A

refers to who bears the burden of the tax

53
Q

when does tax incidence impact consumers (consumers pay)?

A

when the demand curve is inelastic

54
Q

when does tax incidence impact producers (producers pay)?

A

when the supply curve is inelastic

55
Q

what impact do taxes have on consumer-producer relations?

A

taxes create a wedge between the price consumers pay and the price producers receive

56
Q

what does the deadweight loss from taxes represent?

A

the lost efficiency in the market

57
Q

what is the impact when a country opens up to trade?

A

it imports goods at the world price

58
Q

when do imports occur?

A

when the world price is lower than the domestic price

59
Q

what impact do imports have on consumers?

A

consumers benefit from lower prices

60
Q

what impact do imports have on domestic producers?

A

domestic producers are harmed because they face competition from cheaper imports

61
Q

what impact do exports have on a country?

A

domestic producers sell their goods at the world price which may be higher than the domestic price

62
Q

when do exports occur?

A

when the world price is higher than the domestic price

63
Q

what impact do exports have on domestic producers?

A

domestic producers benefit from higher prices and expanded markets

64
Q

what is a tariff?

A

a tax on imports that increases the price of foreign goods

65
Q

what impact do tariffs have on domestic consumers?

A

they face higher prices

66
Q

what impact do tariffs have on domestic producers?

A

they benefit because the price of foreign goods rises

67
Q

how could a tariff result in DWL

A

if the tariff causes inefficiency and loss of total surplus

68
Q

what is protectionism?

A

advocates for tariffs and trade barriers to protect domestic industries, create jobs, and ensure national security

69
Q

what do critics argue about protectionism?

A

that it leads to higher prices, inefficiency, and retaliation from other countries

70
Q

what is the formula to solve for price elasticity of demand?

A

(Q2 - Q1) / Q2 + Q1)
—————————– = PED
(P2 - P1) / (P2 + P1)

71
Q

what is the formula to solve for cross elasticity?

A

(Qx2 - Qx1) (Py2 - Py1)
—————- / —————- = Exy
Qx1 Py1

72
Q

what is the formula to solve for elasticity of supply?

A

(Q1 - Q2) (P1 - P2)
————- / ————— x 100 = Es
Q1 P1

73
Q

what is marginal benefit?

A

the additional benefit a consumer receives from consuming one more unit of the good/service

74
Q

what is the formula to solve for marginal benefit?

A

the chance in quantity (Q) consumed

75
Q

what is marginal cost?

A

the additional cost incurred when producing one more unit of the good/service

76
Q

what is the formula to solve for marginal cost?

A

change in quantity produced: Q1 - Q2

77
Q
A

ECON.101 (2 decks)

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