% change in quantity demanded/ % change in price

elastic with respect to price if the absolute value of elasticity >1

inelastic if <1

unit elasticity= 1

if demand is elastic a price increase will a.___ total expenditure and a price reduction will b.___ total expenditure

if demand is inelastic a price increase will c___ total expenditure and a price reduction will d.___ total expenditure

a. reduce

b. increase

c.increase

d. reduce

change in utility/ change in consumption

the change that occurs as we move from one quantity (subtract quantities)

Complements: an increase in price of one causes leftward shift in demand curve for the other

substitutes: increase in price of one causes rightward shift in demand curve for the other

1) decrease in price of compliments

2) increase in price of substitutes

3) increase in income (for a normal good)

4) increase in preference by demanders for goods

5) increase in population of potential buyers

6) expectation of higher prices in the future

1) decreae in cost of materials, labor or other inputs used in production of goods

2) improvement in technology

3) improvement in weather

4) increaes in number of suppliers

5) expectation of lower future prices

spending should be allocated across goods so that marginal utility per dollar is the same for each good

MUc/Pc=MUv/Pv

Real price: the $ price of a good relative to the average dollar price of all other goods

nominal price: the absolute price of a good in $ terms

a property of the relationship between the amount of a good or service produced and the amount of a variable factor required to produce it

- when some factors of production are fixed, increased production of a good eventually requires even larger increases in the variable factor

fixed input: an input whose quantity cannot be altered i nthe short run

variable input: input whose quantity can be altered in the short run

fixed cost: sum of all payments made to the firms fixed input

variable cost: sum of all payments made to the firms variable input

total cost: FC+VC

marginal cost: as output changes from one level to another => change in TC/ change in output

AVC=VC/Q

ATC=TC/Q

Shutdown condition: P< min value of AVC curve

1) when price= marginal cost= the perfectly competitive firm's profix maximizing supply rule

2) p>MC firm can increase profit by expanding production and sales

3) P<MC firm can increase profit by producing and selling less output

accounting profits= total revenue- explicit costs (actual payments a firm makes to its factors of production and other suppliers)

economic profits= total revenue- explicit costs- implicit costs (opportunity costs of resources supplied by firm's owners)

normal profit= economic profit- accounting profit

constant: all inputs are changed by a given proportion, output changes by same proportion

increasing: all inputs are changed bya given proportion, output changes by more than proportion economies of scale

TC= FC+ MC*Q

ATC= FC/Q +MC

- the practice by which a seller offers a discount to al buyers who overcome some obsticles

- a threshold that completely segregates buyers whose reservation price lie above it from others whose reservation price lies belw it imposing no cost on those that jump the hurdle

social MC= private MC+XC(externalities)

difference between private MC and social MC results in deadweight loss

MP= additional output a firm gets by employing one additional unit of labor

VMP= dollar value of the additional output a firm gets by employing one additional unit of labor

workers pay in the long run will equal their VMP=> the net contribution they make to the employer's revenue