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Econ > Unit Three > Flashcards

Unit Three Flashcards

1
Q

Price elasticity

A

The measure of the responsiveness of the percent change in quantity demanded or quantity supplied to changes in price
OR
How much more or less someone is going to buy/sell of something when prices change
Q = (elasticity) x (price) + B

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2
Q

Necessity

A

A good for which consumption tends to show a little to no response to a change in price
Aka necessity good

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3
Q

Luxury good

A

A good for which consumption tends to show a significant response to a change in price

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4
Q

Total revenue

A

Money flowing into a firm from sale of a given quantity
TR = price of a good x quantity sold
OR
TR = PQ

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5
Q

Total revenue test

A

Used to determine if a good is price elastic or inelastic

Compares changes in price to changes in total revenue

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6
Q

Elastic

A

A good is elastic if:
Decrease in price —> increase in quantity demanded —> increase in total revenue
Increase in price —> decrease in quantity demanded —> decrease in total revenue

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7
Q

Inelastic

A

A good is inelastic if:
Decrease in price —> increase in quantity demanded —> decrease in total revenue
Increase in price —> decrease in quantity demanded —> increase in total revenue

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8
Q

Price elasticity of demand

A

Percent change in quantity demanded / percent change in price OR
change in x-axis (run) / change in y-axis (rise)

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9
Q

Coefficients in relation to elasticity

A 
>1 is elastic
<1 is inelastic
=1 is unit elastic
0 is perfectly inelastic
Undefined/infinity is perfectly elastic
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10
Q

Cross price elasticity of demand

A

Percent change in quantity demanded of good A / percent change in price of good B
Positive answer = substitutes
Negative answer = complements
Cross price = compares two goods, find out if subs or comps and strength of relationship

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11
Q

Income elasticity of demand

A

Percent change in quantity demanded / percent change in income
Positive answer = normal good
Negative answer = inferior good
Normal or inferior

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12
Q

Price elasticity of supply

A

Percent change in quantity supplied / percent change in price

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13
Q

Price up Qd down TR up
Price up Qd down TR down
Price up Qd down TR no change

A

Inelastic, elastic, unit elastic

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14
Q

Price down Qd up TR up
Price down Qd up TR down
Price down Qd up TR no change

A

Elastic, inelastic, unit elastic

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15
Q

Unit elasticity

A

A good is unit elastic if
Decrease in price —> increase in Qd —> no change in total revenue
Increase in price —> decrease in Qd —> no change in total revenue
One to one slope

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16
Q

Perfectly elastic

A

Fixed price

Horizontal line

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17
Q

Perfectly inelastic

A

Fixed quantity
Vertical line
Regardless of price, fixed quantity

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18
Q

Price ceiling

A

A legal maximum price for which a good can be sold

A binding ceiling can create a shortage (Qs

19
Q

Binding price ceiling

A

Price control below equilibrium point

20
Q

Price floor

A

A legal minimum price for which a good can be sold

A binding price floor can create a surplus (Qs>Qd)

21
Q

Binding price floor

A

Price control above equilibrium point

22
Q

Product markets

A 
Consumers = demanders
Producers = suppliers
23
Q

Consumer surplus

A

(Amount buyer is willing to pay) - (amount buyer actually pays)

24
Q

Consumer surplus in a perfectly competitive market for a good/service

A

The portion of the demand curve above the equilibrium price represents consumers who are receiving surplus

25
Q

Cost

A

What is given up to produce a good

Includes opportunity costs

26
Q

Producer surplus

A

(Amount seller is paid) - (lowest amount seller is willing to sell at)

27
Q

Producer surplus in a perfectly competitive market for a good/service

A

The portion of the supply curve below the equilibrium price represents producers who are receiving surplus

28
Q

Total surplus

A

(Consumer surplus) + (producer surplus)

29
Q

Efficient market

A

Market that is operating at the price and quantity with the most total surplus
OR
Market that is operating with “allocative efficiency” (at equilibrium)
P up, CS down, PS up
P down, CS up, PS down

30
Q

Deadweight loss

A

The fall in total surplus due to a market distortion
-government control (price control, taxes)
-market power
-externalities
Occurs because the market is not at equilibrium

31
Q

Taxes in perfectly competitive markets

A

Taxes are almost always split between producers and consumers
-exception: perfectly elastic/inelastic demand or supply
The burden of the tax falls more heavily on the part of the market that is more inelastic

32
Q

Graphing taxes in perfectly competitive markets

A

Tax wedge

Tax is the rectangle formed by the lines of the CS, PS, and DWL

33
Q

Efficiency vs equity

A

In economics there is a trade off between efficiency and equity
Ex. Taxes make it so people in society can be allocated certain resources, however it disrupts market efficiency

34
Q

Lump-Sum Tax

A

A tax that is an equal quantity for every person (ex. everyone pays $50)
Ex. Excise taxes with cars, city tax/overnight tax—tourist cities people pay 1-4 euros/night)

35
Q

Progressive tax

A

A tax that increases in percentage as income rises

Ex. High income pays 40%, low income pays 30%

36
Q

Regressive tax

A

A tax that decreases in percentage as income rises

Ex. High income pays 20%, low income pays 30%

37
Q

Proportional tax

A

A tax for which each taxpayer pays an equal proportion of their income

38
Q

Laffer curve

A

The idea that at a certain point decreasing tax percentage actually increases tax revenue
Applies the concept of elasticity to taxes
Looks like an upside down parabola

39
Q

Demand curve elasticity

A

Top is elastic, middle is unit elastic, bottom is inelastic

40
Q

Are supply and demand more elastic in the short run or long run

A

More elastic in the long run more inelastic in the short run

41
Q

Deadweight loss in relation to elasticity of supply and/or demand

A

More elastic means more deadweight loss

42
Q

Excise tax

A

A sales tax (tax on consumption). Affects demand, but will be split between producers and consumers in almost all instances

43
Q

Purchasing power

A

The amount of goods a consumer can purchase with their income

44
Q

Expenditure

A

Spending

Econ (14 decks)

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