Unit 2 Flashcards
law of demand
price up, demand down; 4 principles
- common sense
- Law of diminishing marginal utility
- Income effect
- Substitution
Law of diminishing marginal utility
less satisfaction the more you consume
Income effect
price lowers, feel like you have more $
Demand Determinants
SPITE: Subs + Comps People (# of buyers) Income Taste Expectations *change in prince moves along curve
law of supply
as price increases, supply also increase
Supply Determinants
POINT^2: Producer Expectations Other goods Inputs + resources Number of sellers Taxes + Technology *change in quantity moves along curve
productively efficient
using max resources
allocative efficient
society gets desired goods
elasticity of demand
E = %ΔXd / %ΔXP
% =
% = Δ/original
Midpt Formula
Ed = (ΔQ/(sumQ/2)) / (ΔP/(sumP/2))
elasticity if E>1
elastic
elasticity if E<1
inelastic
elasticity if E=1
unit elastic
extreme elasticity
E=infinity or E=0
Total Receipts/Revenue Test
TR = P x Q
What is the elasticity at top, middle, bottom of graph?
Top - elastic
middle - unit elastic
bottom - inelastic
Supply elasticity
Es = %ΔXq / %ΔXp
Supply elasticity sum
Esum = (ΔQ/ (sumq/2)) / (ΔP/ (sump/2)
supply elasticity if..
Es >1 - elastic
Es<1 - inelastic
Es=1 -unit elastic
Cross elasticity
Exy = %ΔQx / %ΔPy
if:
+ sub
- comp
0 unrelated
income elasticity
Ei = %ΔD / %Δincome
if:
+ normal
- inferior
consumer surplus
dif in max willing to be payed vs actually payed
producer surplus
what they’re willing to charge vs what they do
