Term
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Definition
| the sensitivity between two variables. occurs when a change in price results in a change in quantity demanded. |
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Term
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Definition
| the slope is the same throughout the whole line but elasticity varies. 1/slope * P/Q is the formula. |
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Term
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Definition
| can be drawn as a rectangle on the dmd curve, hight is P and width is the quantity sld by fims and purchased by consumers. |
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Term
| Elastic price elasticity of demand |
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Definition
| represented by the upper left of the demand curve, indicates that to increase revenue you must sell more at a lower price |
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Term
| Inelastic price elasticity of demand |
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Definition
| represented by the lower right of the dmd curve, to increase revenue one should sell less at a higher price |
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Term
| Unit Elastic price elasticity of dmd |
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Definition
| repped by the midpoint: revenue is maxed and cannot be increased |
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Term
| Elastic/ sensitive demand determinants |
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Definition
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Term
| inelastic/ non sensitive dmd determinant |
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Definition
| no substitutes for the product |
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Term
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Definition
| the demand becomes more responsive to price changes over time |
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Term
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Definition
| If the govt raises a tax on a specific good:results in an increase of a firm's costs and an increase in consumer's price. They increase revenue on an inelastic good (cigarettes) |
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Term
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Definition
| supply is elastic and to suppy more, for example, you can build new buildings |
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Term
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Definition
| Supply is inelastic, and to supply more, for example, you need more labor which is expensive |
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Term
| Income Elasticity of Demand |
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Definition
| relative change in demand in response to changes in income (horizontal shift)--- formula= %change in Qd/ %change in I |
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Term
| Inelasticity of dmd for a normal good |
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Definition
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Term
| Inelasticity of Dmd for an inferior good |
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Definition
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Term
| Cross- price elasticity of demand |
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Definition
| the relative change of Qd as a response to a change in the price of another good. EXY= %change in QdX/ %change in PY (change at a given price of X) |
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Term
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Definition
| the satisfaction we get from consuming a good/service. |
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Term
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Definition
| the additional satisfaction one gets from consumption |
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Term
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Definition
| the additional satisfaction one gets by consuming one more unit of a good (decreases as one consumes more) |
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Term
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Definition
| maximized when MUx=MUy assuming that 2 goods are the same price |
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Term
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Definition
| don't change without varying output such as rent or insurance-- we pay insurance on our car whether we drive it or not |
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Term
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Definition
| vary based on output: wages paid to workers or cost of materials may vary |
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Term
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Definition
| the sum of fixed and variable costs |
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Term
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Definition
| the total costs divided by the number of units produced, giving us the average cost per unit |
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Term
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Definition
| the change in total costs with an increase in output, giving us the additional cost per additional output. "If we add one more output, what are the additional costs?" |
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