# Shared Flashcard Set

## Details

MPP602
Midterm 1 review, MPP602
68
Economics
10/08/2010

## Additional Economics Flashcards

Term
 [image]
Definition
 Supply curve
Term
 [image]
Definition
 Demand Curve
Term
 What is the definition of demand?
Definition
 The quantity demanded of a good is the amount of the product a consumer would buy at a given price.
Term
 What does a Demand Curve show?
Definition
 A demand curve shows the relationship between a good's price and the quantity demanded
Term
 What is the "Law of Demand?"
Definition
 The law of demand is an economic law that states that consumers buy more of a good when its price decreases and less when its price increases.
Term
 If income goes UP and demand also goes UP, what type of good are we discussing?
Definition
 A normal good.
Term
 If income goes UP and demand goes DOWN, what type of good are we discussing?
Definition
 An inferior good.
Term
 If you only change price you usually [blank] the curve.
Definition
 You usually move along the curve (it does not usually shift the curve)
Term
 [image]
Definition
 This demand curve shift represents a normal good
Term
 [image]
Definition
 This demand curve shift represents an inferior good
Term
 If demand for a good increases when a related good's price goes up, what do we call that related good?
Definition
 A substitute
Term
 If demand for a good decreases when a related good's price goes UP, what do we call that related good?
Definition
 A complement
Term
 True or False: A change in quantity demanded and a change in demand have the same affect on the demand curve?
Definition
 False: A change in quantity demanded usually moves a point along the demand curve, while a change in demand shifts the demand curve.
Term
 True or False: A decrease in the price of a complement will increase demand
Definition
 True
Term
 True or False: A decrease in the price of a substitute will decrease demand.
Definition
 True
Term
 The [blank] is the amount of a product a firm is willing to sell at a given price.
Definition
 Quantity supplied
Term
 If the cost of an input decreases, does the Supply Curve shift inwards (left) or outwards (right)?
Definition
 The supply curve shifts outwards as represented by this graph: [image]
Term
 Say a new regulation decreases efficiency, and therefore leads to higher costs, which way will the supply curve shift?
Definition
 Higher costs will cause the supply curve to shift to the left.
Term
 As more firms enter the industry [in theory], prices will go [blank] while the Supply Curve shifts [blank]
Definition
 Prices will go down and the supply curve shifts right (outwards)
Term
 Define equilibrium
Definition
 It is the point at which quantity demanded and quantity supplied are equal.
Term
 What is represented by the equation Qd > Qs and the red part of the graph below? [image]
Definition
 The area in red is a shortage.
Term
 What is represented by the equation Qs > Qd and the red area in the graph below? [image]
Definition
 The equation given and the red area of the graph represent a Surplus
Term
 Excess demand is also known as what?
Definition
 A shortage
Term
 Excess supply is also known as what?
Definition
 A surplus
Term
 What happens to the demand curve of Pepsi if the price of Coca Cola (a substitute) increases?
Definition
 The demand curve will shift outwards (to the right).
Term
 What happens to the demand curve for monitors if the price of computers increases (complements)
Definition
 The demand curve will shift inwards (to the left)
Term
 In the graph below, what is the term for the area shaded in red? [image]
Definition
 Consumer Surplus is represented by the red area.
Term
 In the graph below, what is the term for the areas shaded in blue? [image]
Definition
 The area shaded in blue is called the producer surplus
Term
 Assume a consumer goes out shopping for a CD player and he or she is willing to spend \$250. When this individual finds that the player is on sale for \$150, economists would say that this person has a [blank] of \$100.   Source: investopedia.com
Definition
 Consumer Surplus
Term
 Say a producer is willing to sell a widget at \$5 and consumers are willing to purchase these widgets for \$8 per widget. The \$3 difference is called a [blank]   Source: investopedia.com
Definition
 Producer surplus
Term
 The area below the demand curve and above the price paid is called a [blank].
Definition
 Consumer surplus
Term
 Say a producer supplies less than the market demands due to a price ceiling as represented by the graph below: [image] What is the term for the area shaded in green (aka: consumers who would have more marginal benefit than marginal cost who are not buying the product, or consumers who would have more marginal cost than marginal benefit who are buying the product.)?
Definition
Term
 The following equation represents what?   [image]
Definition
 Price elasticity of demand
Term
 The following equation represents what? [image]
Definition
 Price elasticity of demand
Term
 If demand is very responsive to price changes, its elasticity is said to be what?
Definition
 Price elastic
Term
 If demand is not very responsive to price changes, its elasticity is said to be what?
Definition
 Price inelastic
Term
 The following equation represents what? Q = a - b * P
Definition
 Elasticity for linear demand curves
Term
 Does the following equation represent elastic or inelastic demand? [image]
Definition
 The equation  [image]represents elastic demand
Term
 Does the following equation represent elastic or inelastic demand? [image]
Definition
 The equation [image]represents inelastic demand
Term
 What does the following equation represent? [image]
Definition
 The equation [image] represents Income elasticity of demand
Term
 If a good's income elasticity of demand is less than zero, what type of good can this be considered?
Definition
 It is an inferior good.
Term
 If a good's income elasticity of demand is greater than zero, what type of good can we consider it?
Definition
 If Ei > 0, the good is a normal good
Term
 If a good's income elasticity of demand is greater than 1, the good can be considered what?
Definition
 If Ei > 1, it can be considered a luxury good
Term
 During a period of increasing income, demand for luxury products tends to [blank] at a higher rate than the demand for necessities.
Definition
 Increase
Term
 With regards to consumer preferences, the symbol > means what?
Definition
 "Is strictly preferred to"
Term
 With regards to consumer preferences, the symbol ~ means what?
Definition
 "is equally preferred to"
Term
 With regards to consumer preferences, what is the symbol for "preferred equally to"
Definition
 ~
Term
 The symbol [image] stands for what, with regards to consumer preferences
Definition
 Is weakly preferred.
Term
 What are the 3 assumptions made about consumer's preferences?
Definition
 1) Completeness 2) Transitivity 3) More is better than less (non-satiation)
Term
 What does the "completeness assumption" mean in consumer preferences?
Definition
 Completeness: consumers can always compare and rank all possible bundles, and determine which ones are more preferable than others and which they are indifferent between.
Term
 What does the "transitive assumption" mean in consumer preferences?
Definition
 Transitivity: if A is preferred to B, and B is preferred to C, then A is preferred to C as well.
Term
 What does the "non-satiation assumption" mean in consumer preferences?
Definition
 Non-satiation: given a choice of two bundles that are identical in composition, you will always take the larger basket.
Term
 If X is preferred to Y, and Y is indifferent to Z, what would the answer look like?
Definition
 X > Y ~ Z
Term
 Define indifference curve
Definition
 An Indifference Curve is a set of bundles that all give the consumer the same level of satisfaction.
Term
 What does the following graph represent? [image]
Definition
 Indifference curves for perfect complements X and Y.
Term
 What does the following indifference curve represent? [image]
Definition
 Indifference curves where Goods X and Y are perfect substitutes.
Term
 For any two bundles, A & B, on the same indifference curve, A __ B?
Definition
 A ~ B (A is preferred equally to B)
Term
 Why are indifference curves negatively sloped?
Definition
 As quantity consumed of one good (X) increases, total satisfaction would increase if not offset by a decrease in the quantity consumed of the other good (Y)
Term
 The negative slope of the indifference curve reflects the law of:
Definition
 Diminishing Marginal Utility
Term
 What does the law of diminishing marginal utility state?
Definition
 The law of diminishing marginal utility states that as more of a good is consumed, total utility increases at a decreasing rate - (additions to utility per unit consumption are successively smaller).
Term
 The slope (absolute value) of the indifference curve is also known as what?
Definition
 Marginal Rate of Substitution (MRS)
Term
 If two goods are perfect complements then the indifference curves will be what shape?
Definition
 If two goods are perfect complements then the indifference curves will be L-shaped.
Term
 The marginal rate of substitution is zero or infinite for what type of goods?
Definition
 Perfect Complements
Term
 If two people are trading, gains from trading can only occur when MRS [_____]
Definition
 Differs
Term
 All firms maximize profit by setting __________ equal to ________.
Definition
 Marginal revenue; Marginal cost
Term
 A ___________ statement is a statement about what is and that contains no indication of approval or disapproval.
Definition
 A positive statement is a statement about what is.
Term
 A ________ statement expresses a judgment about whether a situation is desirable or undesirable.
Definition
 A normative statement expresses a judgement.
Supporting users have an ad free experience!