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ECON 102 > week 2 > Flashcards

week 2 Flashcards

1
Q

what are comparative statics

A

the comparison of two different economic outcomes before and after a change in some underlying exogenous parameter

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2
Q

what is a change in quantity demanded

A

refers to a movement along a given demand curve

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3
Q

what is a change in demand

A

refers to an entirely new demand curve

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4
Q

what factors shift demand

A

change in price of related goods
change in income
change in preferences
change in population
change in expectation of future prices

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5
Q

what are complementary goods

A

goods that are consumed together
if the price of a complementary good decreases then demand increases

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6
Q

what are substitute goods

A

goods that are consumed in place of one another
if the price of a substitute good increases, then demand increases

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7
Q

what is a normal good

A

an increase in income leads to an increase in demand

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8
Q

what is an inferior good

A

an increase in income leads to a decrease in demand

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9
Q

how do changes in preferences shift demand

A

when it became clear that smoking had severe negative health consequences, lead to a decrease in demand

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10
Q

how do changes in population shift demand

A

more buyers lead to increase in demand

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11
Q

how do changes in expectation of future prices shift demand

A

if prices will increase soon, may purchase a good now

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12
Q

how does increase in demand shift the curve

A

an increase in demand leads to an increase in equilibrium price and quantity

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13
Q

how does decrease in demand shift the curve

A

a decrease in demand leads to a decrease in equilibrium price and quantity

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14
Q

how does decrease in demand shift the curve

A

a decrease in demand leads to a decrease in equilibrium price and quantity

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15
Q

what factors shift supply

A

weather
change in expectations
change in number of sellers

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16
Q

how does decrease in supply effect the supply curve

A

a decrease in supply will lead to an increase in equilibrium price and a decrease in equilibrium quantity

17
Q

how does increase in supply effect the supply curve

A

an increase in supply will lead to a decrease in equilibrium price and an increase in equilibrium quantity

18
Q

what is price elasticity of demand

A

denoted by ε
measure of responsiveness of quantity demanded to changes in price

19
Q

how do you calculate ε

A

percentage change in quantity demanded / percentage change in price
ΔQ / ΔP x P/Q

20
Q

what do the results of ε mean

A

ε > 1 - demand is elastic and consumers are fairly responsive to price change
ε < 1 - demand is inelastic and consumers are fairly unresponsive to price change
ε = 1 - demand is unit elastic

21
Q

what is perfectly elastic demand

A

even the slightest price increase leads consumers to switch to substitutes

22
Q

what is perfectly inelastic demand

A

consumers cannot switch to substitutes or stop buying when price increases

23
Q

what is perfectly inelastic demand

A

consumers cannot switch to substitutes or stop buying when price increases

24
Q

what are the determinants of ε

A

availability of close substitutes

25
Q

what is arc elasticity

A

price elasticity of demand between two points on the demand curve

26
Q

what is price point elasticity

A

a measure of the elasticity of demand at a particular point on the demand curve

27
Q

what is ε at point A on the demand curve

A

εA = ΔQ/ΔP x P/Q = 1/slope x P/Q

28
Q

how do you compare price elasticity for two demand curves that intercept

A

if price and quantity are the same, price elasticity is always greater for the less steep of the two demand curves

29
Q

how is revenue effected if demand is elastic

A

a small increase in price will decrease quantity demanded by a relatively large amount

30
Q

how is revenue affected if demand is inelastic

A

a large increase in price will decrease quantity demanded by a relatively small amount
an increase in price increases total revenue

ECON 102 (26 decks)

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