# Shared Flashcard Set

## Details

Econ Exam 3
Elasticity to CS and PS
25
Economics
03/29/2011

Term
 Elasticity
Definition
 the sensitivity between two variables. occurs when a change in price results in a change in quantity demanded.
Term
 Point Elasticity
Definition
 the slope is the same throughout the whole line but elasticity varies. 1/slope * P/Q is the formula.
Term
 Total Revenue
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.
Term
 Elastic price elasticity of demand
Definition
 represented by the upper left of the demand curve, indicates that to increase revenue you must sell more at a lower price
Term
 Inelastic price elasticity of demand
Definition
 represented by the lower right of the dmd curve, to increase revenue one should sell less at a higher price
Term
 Unit Elastic price elasticity of dmd
Definition
 repped by the midpoint: revenue is maxed and cannot be increased
Term
 Elastic/ sensitive demand determinants
Definition
 many substitutes
Term
 inelastic/ non sensitive dmd determinant
Definition
 no substitutes for the product
Term
 Second Law of Demand
Definition
 the demand becomes more responsive to price changes over time
Term
 Exise taxes
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)
Term
 Long Run
Definition
 supply is elastic and to suppy more, for example, you can build new buildings
Term
 Short Run
Definition
 Supply is inelastic, and to supply more, for example, you need more labor which is expensive
Term
 Income Elasticity of Demand
Definition
 relative change in demand in response to changes in income (horizontal shift)--- formula= %change in Qd/ %change in I
Term
 Inelasticity of dmd for a normal good
Definition
 EI is a positive number
Term
 Inelasticity of Dmd for an inferior good
Definition
 EI is a negative number
Term
 Cross- price elasticity of demand
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)
Term
 Utility
Definition
 the satisfaction we get from consuming a good/service.
Term
 Marginal Utility
Definition
 the additional satisfaction one gets from consumption
Term
 Total Utility
Definition
 the additional satisfaction one gets by consuming one more unit of a good (decreases as one consumes more)
Term
 Happiness/ MU
Definition
 maximized when MUx=MUy assuming that 2 goods are the same price
Term
 Fixed Costs
Definition
 don't change without varying output such as rent or insurance-- we pay insurance on our car whether we drive it or not
Term
 Variable Costs
Definition
 vary based on output: wages paid to workers or cost of materials may vary
Term
 Total costs
Definition
 the sum of fixed and variable costs
Term
 Average total costs
Definition
 the total costs divided by the number of units produced, giving us the average cost per unit
Term
 Marginal Cost
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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