# Shared Flashcard Set

## Details

Microeconomics Chapter 4-6
Surplus, Shortage, Elasticity
45
Economics
10/10/2012

Term
 What is a Market?
Definition
 A group of buyers and sellers of a particular product
Term
 What is Demand?
Definition
 The relationship between the price of a product and the quantity consumers are willing and able to buy per period.
Term
 What is the Law of Demand?
Definition
 When price goes down, the quantity demanded goes up, and when the price goes up the quantity demanded goes down.
Term
 What type of relationship do price and quantity have in the law of demand?
Definition
 A negative/inverse relationship
Term
 What does it mean if the demand curve shifts to the right?
Definition
 There is an increase in demand.
Term
 What does it mean if he demand curve shifts to the left?
Definition
 There is a decrease in demand
Term
 Movement along the demand curve = ________ which = _________
Definition
 change in quantity demand, change in price
Term
 A shift in the Demand Curve is not due to
Definition
 Price
Term
 5 reasons for change in demand
Definition
 1)change in income2)Changes in the price of other goods3)Changes in Expectations4)Change in the number of consumers5)Changes in customers taste
Term
 What is the Law of Supply?
Definition
 When price goes up quantity supplied goes up, when price goes down quantity supplied goes down.
Term
 Movement along supply curve = _______ which = ______
Definition
 change in price, change in quantity supplied
Term
 Supply curve shifts left
Definition
 there is a decrease in supply
Term
 Supply curve shifts right
Definition
 there is an increase in supply
Term
 4 Reasons for shifts in supply curve
Definition
 1) technological change2)changes in production costs3) changes in producers expectations4) changes in number of producers
Term
 How do you create a market?
Definition
 Combine both curves
Term
 A surplus is when
Definition
 The market price is above the equilibrium price, Qs>Qd (amount= Qs-Qd)
Term
 A Shortage is when
Definition
 The market price is below the equilibrium price, Qd>Qs (amount= Qd-Qs)
Term
 The tendency of a market is always moving towards
Definition
 Equilibrium
Term
Definition
 Increase in both price and quantity
Term
Definition
 Decrease in both price and quantity
Term
 What is elasticity?
Definition
 Responsiveness
Term
 Price elasticity of demand (Ed) measures
Definition
 consumers responsiveness to changes in price
Term
 What is the equation for elasticity of demand (Ed) ?
Definition
 Ed= Q2-Q1 P2+P1 ------ x ------ Q2+Q1 P2-P1
Term
 When do you ignore the negative sign?
Definition
 Elasticity of Demand
Term
 Ed>1
Definition
 Elastic
Term
 Ed<1
Definition
 Inelastic
Term
 Ed=0
Definition
 Perfectly Inelastic
Term
 Ed=1
Definition
 Unit Elasticity
Term
 Ed= Infinity
Definition
 Perfectly Elastic
Term
 5/0=
Definition
 Infinity=Perfectly Elastic
Term
 0/5=
Definition
 Zero = Perfectly Inelastic
Term
 What determines price elasticity?
Definition
 Availability of substitutes
Term
 When is price elasticity higher?
Definition
 when close substitutes are available
Term
 How do you calculate Total Revenue (TR)
Definition
 Price x Quantity
Term
 If demand is elastic a ____ in price leads to a ______ in Total Revenue
Definition
 Increase , DecreaseDecrease , Increase
Term
 If demand is inelastic a ____ in price leads to a ______ in Total Revenue
Definition
 Increase, IncreaseDecrease, Decrease
Term
 What makes demand inelastic?
Definition
 No substitutes
Term
 If demand is Unit Elastic
Definition
 An increase or decrease in price will not affect the total revenue
Term
 What does Income Elasticity of Demand (Ei)measure?
Definition
 the responsiveness of demand to a change in consumer income
Term
 What is the equation for Elasticity of Demand (Ei)?
Definition
 Ei= Q2-Q1 I2+I1 ------ x ------ Q2+Q1 I2-I1
Term
 What is an Inferior Good?
Definition
 Goods where even though the consumer income increases the demand for these goods decrease(Fast food, Used Furniture, etc)
Term
 Normal Goods have a _____ Income Elasticity
Definition
 Positive
Term
 Inferior Goods have a _____ Income Elasticity
Definition
 Negative
Term
 What does Price Elasticity of Supply (Es) measure?
Definition
 Producers responsiveness to a change in price
Term
 What is the equation for Price Elasticity of Supply (Es)?
Definition
 Es= Q2-Q1 S2+S1 ------ x ------ Q2+Q1 S2-S1
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