Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
77 Cards in this Set
- Front
- Back
Elasticity
|
a measure of responsiveness to changes in prices or incomes
|
|
Price elasticity of demand
|
measures the responsiveness of the quantity demanded to price
|
|
how do you calculate price elasticity of demand?
|
% change in quantity
/ % change in price |
|
Calculate the % change in quantity demanded
|
Change in quantity demanded/
Initial Quantity demanded X 100 |
|
How do you calculate % change in price
|
Change in price/
Initial Price X 100 |
|
What does it mean if the price elasticity of demand is a large number?
|
The product is elastic
|
|
midpoint method
|
a technique for calculating the percent change. In this approach, you calculate changes in a variable compared with the average, or midpoint, of the starting and final values
|
|
calculate using the midpoint method, aka the % change in X
|
Change in X/
Average value of X x100 |
|
How do you calculate the average value of X?
|
Starting value of X + Final Value of X
/ 2 |
|
perfectle inelastic demand
|
zero price elasticity,
when the quantity demanded does not respond at all to changes in the price. |
|
what does a perfectly inelastic demand curve look like?
|
a vertical line
|
|
Perfectly elastic
|
infinite elasticity
when any price increase will cause the quantity demanded to drop to zero. |
|
What does a perfectly elastic demand curve look like?
|
A horizontal line
|
|
What does it mean if the price elasticity of demand is greater than 1?
|
It is elastic
|
|
What does it mean if the price elasticity of demand is less than 1?
|
It is inelastic
|
|
What does it mean if the price elasticity of demand is equal to 1?
|
It is unit-elastic
|
|
Total Revenue
|
the total value of sales of a good or service.
|
|
Calculate total revenue
|
Price x quantity sold
|
|
price effect
|
After a price increase, each unit sold sells at a higher price, which tends to raise revenue
|
|
quantity effect
|
after a price increase, fewer units are sold, which tends to lower revenue
|
|
What happens to revenue when a good is elastic?
|
it reduces revenue
|
|
What happens to revenue when the demand is inelastic?
|
it increases revenue
|
|
What happens to the revenue when the demand is unit-elastic?
|
It does not change the revenue
|
|
Cross-price elasticity of demand
|
measures the effect of the change in one good's price on the quantity demanded of the other good.
|
|
calculate the cross price elasticity of demand
|
% change in quantity of A demanded
/ % change in price of B |
|
income elasticity of demand
|
the measure of how much the demand for a good is affected by changes in consumer's incomes
|
|
income-elastic
|
if the income elasticyity of demand for that good is greater than 1
|
|
income-inelastic
|
if the income elasticity of demand for that good is positive but less than 1
|
|
calculate income elasticity of demand
|
% change in quantity demanded/
% change in income |
|
Price elasticity of supply
|
measure of the responsiveness of the quantity of a good supplied to the price of that good
|
|
calculate price elasticity of supply
|
% change in quantity supplied/
% change in price |
|
individual consumer surplus
|
the net gain to an individual buyer from the purchase of a good
|
|
total consumer surplus
|
the sum of the individual consumer surpluses of all the buyers of a good
|
|
consumer surplus
|
used to refer to both individual and to the total consumer surplus
|
|
How do you calculate the individual consumer surplus?
|
the difference between the buyer's willingness to pay, and the actual price payed
|
|
Seller's cost
|
the lowest price at which he or she is willing to sell a good
|
|
individual producer surplus
|
the net gain to a seller from selling a good
|
|
calculate individual producer surplus
|
difference between the price received and the sellers cost
|
|
total producer surplus
|
the sum of the individual producer surpluses of all the sellers of a good
|
|
total surplus
|
the total net gain to consumers and producers from trading in the market
|
|
Calculate the total surplus
|
the sum of the producer and the consumer surplus
|
|
explicit tax
|
a cost that involves actually laying out money
|
|
implicit cost
|
does not require an outlay of money, it is measured by the value, in dollar terms, of the benefits that are forgone
|
|
marginal cost
|
the additional cost incurred by doing one more unit of that activity
|
|
increasing marginal cost
|
when each additional unit of the activity costs more than the previous unit
|
|
marginal cost curve
|
shows how the cost of undertaking one more unit of an activity depends on the quantity of that activity that has already been done
|
|
marginal benefit
|
an activity is the additional benefit derived from undertaking one more unit of that activity
|
|
decreasing marginal benefit
|
when each additional nit of the activity produces less benefit than the previous unit
|
|
marginal benefit curve
|
shows how the benefit from undertaking one more unit of an activity depends on the quantity of that activity that has already been done
|
|
optimal quantity
|
the quantity that generates the maximum possible total net gain
|
|
principle of marginal analysis
|
the optimal quantity of an activity is the quantity at which marginal benefit is equal to marginal cost
|
|
sunk cost
|
cost that has already been incurred and is nonrecoverable. It should be ignored in decisions about future actions
|
|
production function
|
the relationship between the quantity of inputs a firm uses and the quantity of output it preduces
|
|
fixed input
|
an input whose quantity is fixed and cannot be varied
|
|
variable input
|
an input whose quantity the firm can vary
|
|
long run
|
the time period in which all inputs can be varied
|
|
short run
|
the time period in which at least one input is fixed
|
|
marginal product
|
the additional quantity of output that is produced by using one more unit of that input
|
|
calculate marginal product of labor
|
change in quantity of output
/ change in quantity of labor |
|
diminishing returns to an input
|
when an increase in the quantity of that input, holding the levels of all other inputs fixed, leads to a decline in the marginal product of that input
|
|
fixed cost
|
a cost that does not depend on the quantity of output produced. It is the cost of the fixed input
|
|
variable cost
|
a cost that depends on the quantity of output produced. It is the cost of the variable input
|
|
total cost
|
the sum of the fixed cost and the variable cost of producing that quantity of output
|
|
total cost curve
|
shows how total cost depends on the quantity of output
|
|
calculate average total cost
|
Total cost
/ Quantity of output |
|
average total cost curve
|
falls at low levels of output, then rises at higher levels
|
|
average fixed cost
|
the fixed cost per unit of output
|
|
average variable cost
|
the variable cost per unit of output
|
|
minimum-cost output
|
the quantity of output at which average total cost is lowest- the bottom of the U-shaped average total cost curve
|
|
long-run average total cost curve
|
the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output
|
|
Price Effect > Quantity Effect then demand is (elastic or inelastic)
|
Inelastic
|
|
if P goes down and TR goes up then demand is (inelastic or elastic)
|
elastic
|
|
If Demand is _______ then there are many substitutes (inelastic or elastic)
|
elastic
|
|
If demand is _______ then there must be a luxury (elastic or inelastic)
|
elastic
|
|
If demand is _____ then this must mean long run analysis (elastic or inelastic)
|
elastic
|
|
If demand is ______then this good must be Broadly defined (elastic or inelastic)
|
inelastic
|
|
Four factors that determine Price Elasticity of Demand
|
Availability of close substitutes
luxury, necessity long run/short run broadly defined, narrowly defined |