# Shared Flashcard Set

## Details

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

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=MCDemand=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.
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