Unit 2

Question 1

law of demand

Answer 1

price up, demand down; 4 principles

1. common sense
2. Law of diminishing marginal utility
3. Income effect
4. Substitution

Question 2

Law of diminishing marginal utility

Answer 2

less satisfaction the more you consume

Question 3

Income effect

Answer 3

price lowers, feel like you have more $

Question 4

Demand Determinants

Answer 4

SPITE: 
Subs + Comps
People (# of buyers)
Income
Taste
Expectations
*change in prince moves along curve

Question 5

law of supply

Answer 5

as price increases, supply also increase

Question 6

Supply Determinants

Answer 6

POINT^2:
Producer Expectations
Other goods
Inputs + resources
Number of sellers
Taxes + Technology
*change in quantity moves along curve

Question 7

productively efficient

Answer 7

using max resources

Question 8

allocative efficient

Answer 8

society gets desired goods

Question 9

elasticity of demand

Answer 9

E = %ΔXd / %ΔXP

Question 10

% =

Answer 10

% = Δ/original

Question 11

Midpt Formula

Answer 11

Ed = (ΔQ/(sumQ/2)) / (ΔP/(sumP/2))

Question 12

elasticity if E>1

Answer 12

elastic

Question 13

elasticity if E<1

Answer 13

inelastic

Question 14

elasticity if E=1

Answer 14

unit elastic

Question 15

extreme elasticity

Answer 15

E=infinity or E=0

Question 16

Total Receipts/Revenue Test

Answer 16

TR = P x Q

Question 17

What is the elasticity at top, middle, bottom of graph?

Answer 17

Top - elastic
middle - unit elastic
bottom - inelastic

Question 18

Supply elasticity

Answer 18

Es = %ΔXq / %ΔXp

Question 19

Supply elasticity sum

Answer 19

Esum = (ΔQ/ (sumq/2)) / (ΔP/ (sump/2)

Question 20

supply elasticity if..

Answer 20

Es >1 - elastic
Es<1 - inelastic
Es=1 -unit elastic

Question 21

Cross elasticity

Answer 21

Exy = %ΔQx / %ΔPy

if:
+ sub
- comp
0 unrelated

Question 22

income elasticity

Answer 22

Ei = %ΔD / %Δincome

if:
+ normal
- inferior

Question 23

consumer surplus

Answer 23

dif in max willing to be payed vs actually payed

Question 24

producer surplus

Answer 24

what they’re willing to charge vs what they do

Question 25

demand failure

Answer 25

curves don’t relfect demand

Question 26

supply failure

Answer 26

producers don’t pay full cost of production

Question 27

productive + allocatively effcient

Answer 27

PS=CS

Question 28

deadweight loss

Answer 28

under or overproduction/ shortage vs surplus

Question 29

short run

Answer 29

economy behaves differently depending on the length of time it has to react to certain stimuli.

Question 30

long run

Answer 30

ll factors of production and costs are variable