Shared Flashcard Set

Details

Economics 209 Chapters 4-6 study guide
Economics 209
20
Economics
Undergraduate 2
10/11/2011

Additional Economics Flashcards

 


 

Cards

Term
Know
Definition

If elastic change in price and total revenue go in opposite directions.

Demand inelastic change in price and total revenue if in same direction. If you raise price total revenue in same direction.

Term
What is meant by Unit elasticity and how will it affect total revenue?
Definition
Unit elastic=1 Percentage change in quantity demanded is same as percentage change in price. Total revenue does not change.
Term
Be able to interpret the elasticity of different demand curves
Definition

Vertical demand- Perfectly inelastic, elasticity of demand=0 such as insilun

 

Horizontal demand- Perfectly elastic= infinite when goods have perfect substitutes. For example two pop machines side by side, one machine cost more so nobody buys from it.

Term
How does elasticity vary along a downward sloping linear demand curve?
Definition
At midpoint unit elastic, above midpoint elastic, below inelasitc, for all linear downward sloping demand curves.
Term
What factors affect price elasticity of demand?
Definition

Number and availability of substitutes,

 

proportion of income spent- greater spent- greater elasticity.

 

Elapsed time- how long it's been since last price change.

 

Term
What does cross elasticity of demand coefficient tell us about products? Be able to interpret these coefficients. Several Questions!
Definition

Cross elasticity of demand- tells wheter goods are substitutes or compliments. Positive=substitute, negative=compliments

 

Term
What does elasticity of supply measure?
Definition
The responsiveness of quantity, supplied to change in price
Term
Be able to interpret elasticity of supply.
Definition

Same greater 1=elastic

0=perfectly inelastic

less than 1

 

Term
What is meant by marginal benefit and marginal cost?
Definition

additonal benefit recieved from consuming one more unit of good.

MC- Additonal cost of producing one more unit

 

Term
What happens to marginal benefit as more of a good is consumed
Definition

It decreases 

MB decrease as more is consumed also demand curve

Mc rises as more is produced is also supply curve

Term

What is a consumer surplus? (Formula:MB-Price=Consumer surplus)

 

Definition
Consumer surplus occurs when MB>Price. You have to pay. MB-Price=consumer surplus
Term
What is producer surplus?(Formula: Price-MC=Producer surplus)
Definition

PS Price-Marginal cost of producing it.

Supply=MC
Demand=MB 

Term
Locate both Consumer surplus and Producer Surplus on graph
Definition
[image]
Term
What is a price floor and be able to give an example
Definition

Causes of inefficiency Price floor-minimum allowable price that person can be paid- minimum wage when equilibrium is to low

Above equilibrium- surplus surplus of labor is unemployment.

Price Ceiling- Maximum allowable price gas cap, rent ceilings. Result is shortage of apartments if equilibrium price is to high

Term
What is meant by deadweight loss? What can cause it?
Definition

deadweight loss- reduction of producer and consumer surplus caused by inefficency in market. Cause inefficent quantity is produced over or underproduction can cause it.

 

The more inelastic demand the greater the portion of tax paid by buyer, tobacco

 

More elastic demand the greater the portion of tax paid by seller

 

 

Term
What are the causes of inefficiency in the market?
Definition
Price floor, price ceiling, monopolies, extranalites, quotas, subsidy
Term
What is a subsidy, quota, and monopoly How do they result in inefficiency?
Definition

Subsidy- Payment to producer of good or service results in overproduction.

Quota- Numerical limit of item that can be produced

Reduces quantity below- underproduction

 

Monopoly- one producer

Under produce to raise price

 

Free-reider-cannot be exclued from using public good regardless whether they helped pay for it.

Term
What are the results of a price ceiling?
Definition

shortage

Black Market

Increased oppurtunity cost

Term
Price elasticity of demand
Definition
A units-free measure of the responsiveness of the quantity demanded of a good to a change in its price, when all other influences on buyers's plans remain the same.
Supporting users have an ad free experience!