Term
What is the formula for Total Revenue?
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Definition
Price x Quantity
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Term
What is Unit elastic demand?
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Definition
Price and quantity demanded, change equally, so total revenue does not change.
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Term
What is Elastic Demand?
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Definition
Slight changes in either price or quantity demanded, yield a very strong change in price or quantity demanded.
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Term
What is Inelastic Demand?
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Definition
Slight changes in either price or quantity demanded, yields little to no change in price or quantity demanded.
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Term
What does an Indifference curve show?
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Definition
A set of a combination of goods that give equal utility to a consumer.
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Term
What does a Budget line do?
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Definition
Illustrates a set of combinations of goods of equal utility that are within a consumer's budget.
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Term
Where is the Utility Maximization Point?
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Definition
The tangent point in which an indifference curve crosses a budget line.
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Term
Everything to the left of a budget line is what?
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Definition
Affordable to the consumer
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Term
Everything to the right of a budget line is what?
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Definition
Un-affordable to the consumer
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Term
Where does marginal cost intersect average variable cost?
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Definition
The minimum of the curve
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Term
Where does marginal cost intersect average total cost?
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Definition
The minimum of the curve
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Term
Marginal cost must be where in relation to average total costs and average variable costs?
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Definition
It must lie above it, to pull up the curve.
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Term
If the average total cost is constant then what must marginal cost be?
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Definition
Equal to average total cost
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Term
What calculations must be known for test 2?
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Definition
Total Fixed Costs
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Total Costs
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Average Fixed Costs
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Total Variable Costs
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Average Variable Costs
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Average Total Cost
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Midpoint Formula: Used to Determine Price Elasticity of Demand
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How to Calculate Equilibrium price and Quantity
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Term
What is the difference between short run and long run?
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Definition
The short run has at least one fixed input, while in the long run all inputs may be varied.
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Term
What is a fixed input?
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Definition
An input like capital or land, that cannot be changed during the short run.
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Term
What is variable input?
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Definition
Inputs like labor, during the long run, that can change.
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Term
Why is the long run average cost curve, U-shaped?
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Definition
The presence of economies of scale in the long run. Larger numbers of output reflect with lower total costs, until past the minimum efficient scale, and into diseconomies of scale, as decreasing returns of scale.
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Term
What is transitivity of goods?
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Definition
If good A is preferred/indifferent to good B, and B is preferred/indifferent to good C, then good A is preferred/indifferent to good C.
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Term
Why do indifference curves not intersect?
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Definition
They violate transitivity
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Term
What is the mid-point formula for calculating price elasticity of demand?
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Definition
(((Change in Quantity)/(Sum of Quantity/2))/((Change in Price)/(Sum of Price/2))
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Term
What is Immediate Run aka Market Period?
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Definition
A time period in which producers cannot respond to a price change, in which demand is inelastic, and all inputs are fixed.
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Term
The change in output for hiring one additional unit of labor is what?
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Definition
Marginal Product
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Term
What is the Marginal Rate of Substitution?
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Definition
The rate at which a consumer is ready to give up one good in exchange for another good while maintaining the same level of utility
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Term
What is Excise Tax?
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Definition
A tax on consumption or sale of specific goods, for the purpose of gaining tax revenue from a market. This works only when taxing inelastically demanded goods (gas/cigarettes).
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Term
What is Income Elasticity?
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Definition
Measures the responsiveness of the quantity demanded for a good or service to a change in the income of the people demanding the good, ceteris paribus. It is calculated as the ratio of the percentage change in quantity demanded to the percentage change in income.
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Term
How do you calculate equilibrium price?
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Definition
Set quantity demanded equal to quantity supplied, and solve for price.
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Term
How do you calculate equilibrium quantity?
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Definition
Insert equilibrium price into the demand or supply function and solve.
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Term
Change in Total Cost Divided by Change in Quantity equals what?
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Definition
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Term
Average Total Cost equals what?
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Definition
Total Cost divided by Quantity
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Term
How do you calculate Total Fixed Costs?
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Definition
Total Costs - Variable Costs
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Term
How do you calculate Total Variable Costs?
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Definition
Total Costs - Total Fixed Costs
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Term
How do you calculate Average Variable Costs?
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Definition
Variable Costs divided by Quantity
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Term
How do you calculate Average Fixed Costs?
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Definition
Fixed Costs Divided by Quantity
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