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
demand failure
curves don’t relfect demand
supply failure
producers don’t pay full cost of production
productive + allocatively effcient
PS=CS
deadweight loss
under or overproduction/ shortage vs surplus
short run
economy behaves differently depending on the length of time it has to react to certain stimuli.
long run
ll factors of production and costs are variable
