Term
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Definition
| A measure of the responsiveness of quantity supplied to one of its determinents |
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Term
| The price elasticity of Demand |
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Definition
| a measure of how much the quantity demanded of a good responds to a change in the price of that good |
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Term
| Formula for Price Elasticity of Demand |
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Definition
% Change in QD
% Change in P |
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Term
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Definition
| Is QD responds substantially to a change in price |
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Term
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Definition
| If QD responds only slightly to a change in P |
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Term
| 4 things that determine elasticity |
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Definition
1. Availability of Substitutes
2. Necessities versus Luxuries
3. Definition of the market
4. Time horizon |
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Term
| Availability of Substitutes |
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Definition
| goods with close subs tend to have more elastic demand because it is easier for consumers to switch from that good to the next |
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Term
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Definition
N: Inellastic
L:Ellastic
HOWEVER- determining what is what depends on the intrinsic properties of the good (pref of the buyer) |
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Term
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Definition
| narrowly defined markets tend to have more elastic demand than broadly defined markets because it is easier to find close subs for narrow goods |
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Term
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Definition
Goods tend to have more elastic demand over longer time horizons
Ex: gasoline |
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Term
| Describe the Midpoint Method |
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Definition
1. finds the distance between two points on the demand curve
[(Q2-Q1)/(Q2+Q1/2)]
[(P2-P1)/(P2+P1/2)] |
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Term
| How can we tell the elasticity of a supply or demand |
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Definition
1) e>1 = Elastic
e<1 = inelastic
2) the flatter the curve the more elastic |
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Term
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Definition
The amount paid by buyers & receved by sellers of a good computed as the P of the good times the Q
P X Q = TR |
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Term
| When Demand is Inelastic what happens to price and total revenue? Elastic? |
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Definition
INELASTIC: they move in the same direction. If price v then TR v. If price ^ then TR ^
ELASTIC: They move in different directions. If price v then TR increases. If price ^ total revenue decreases |
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Term
| Why is the slope of a linear curve constant and elasticity is not? |
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Definition
| Because slope is a ratio of change in two variables where as elasticity is the ratio of percentage change |
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Term
| Income elasticity of Demand |
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Definition
| a measure of how much the QD of a good responds to a change in consumers income |
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Term
| Equation for income Elasticity of Demand |
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Definition
% change in QD
% change in Income |
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Term
| Normal Goods have ________ income elasticity. Why? |
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Definition
| positive, because as income gets larger so does our QD |
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Term
| Inferior goods have _________ income elasticity. Why? |
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Definition
| Negative, because as income increases then % change in decreases |
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Term
Cross price elasticity of demand
& FORMULA |
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Definition
a measure of how much QD of one good responds to a change in a price of another
C-P=%Change in QD of good 1
% Change in QD of good 2 |
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Term
| Control on Prices: basic principle |
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Definition
| buys of any good always want a lower price while sellers always a higher one |
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Term
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Definition
| a legal maximum on the price at which a good can be sold |
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Term
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Definition
| A legal minimum on the price at which a good can be sold |
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Term
| Non-binding price ceiling |
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Definition
| allows the market prices to move naturally towards equilibrium. P< the ceiling |
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Term
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Definition
| When the market price is = or greater than the price ceiling. Then QD>QS there is a shortage. Next comes a system of rationing has to occur |
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Term
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Definition
| naturally the price is set higher than the equilibrium price |
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Term
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Definition
| when the price set by the market is below the price floor there is a surplus and sellers are unable to sell all they want at the market price |
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Term
| What happened in Santa Monica after rent control laws were enforced |
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Definition
| property owners had to abandon their buildings because they could no longer afford to keep them running. So they were left empty and decaying rather than even bother to sell |
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Term
| In NYC rent-control discouraged |
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Definition
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Term
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Definition
| a system in which the local government tells building owners how much they can charge |
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Term
| How did rent-control originate? |
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Definition
| temporary measure during wartime where landlords couldn't increase rents of those tenants renewing their lease |
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Term
| what is the objective of rent control? |
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Definition
| keep rents below the levels that would be observed in freely competative markets, this meant imposing extensive regulations to prevent increase or evading laws |
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Term
| 3 vital functions of freely competitive housing markets |
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Definition
1: allocated existing scarce housing among competing claimants
2: it promotes the efficient maintentence of existing housing and stimulates to production of new housing, where appropriate
3: it rations usage of housing by demanders, thereby preventing waste of scare housing |
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Term
| Rent Control prevents rental prices from... |
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Definition
| effectivley performing the 3 vital functions of having a freely competative housing market |
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Term
| How does rent control discourage new construction |
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Definition
| it depresses the most important long-run determinant of profitability (RENT) |
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Term
| How does rent control lead to the deterioration of the existing supply of rental housing |
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Definition
1: property owners cant recover through higher rents costs of maintenance repairs and capital improvements
2:eventually, taxes, utilities exceed depressed rental rates and apartment is abandoned |
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Term
| How does rent control impede the process of rationing scarce housing |
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Definition
| tenant mobility is restricted (larger # of people are staying in smaller spaces) GRIDLOCK |
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Term
| the effects of rent control force landlords and tenants to... |
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Definition
evade the rules
discriminate |
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Term
| Proponents of minimum wage say |
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Definition
| low-income workers are underpaid and therefore unable to support themselves and their families |
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Term
| Opponents of minimum wage say... |
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Definition
| low-wage and low-skilled youths dont have their families to support so it merely enriches a few teenagers at a far greater expense of many others who cant get jobs |
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Term
| Typically minimum wage is ____ to ____ % manufacturing wages |
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Definition
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Term
| what is the argument agaisnt those who say minimum wage prevents exploitation of employees and helps people support their families |
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Definition
-2/3 min wage workers are single
-1/2 are teenagers
*MW only benefits middle upper class teens who are at least in need of assistance at the same time that is costs the jobs of thousands of disadvantaged minority youths |
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Term
| In the short run what do firms do when MW increases..but |
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Definition
| do not cut their workforce but overtime the higher costs due to higher pay for their workers force smaller firms out of business or drop in employement |
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Term
| How do opponents claim firms will react to higher minimum wage |
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Definition
-discriminate agasint race or sex
-unwilling to train unskilled workers
-less generous with fringe benefits
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Term
| price elasticity of supply |
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Definition
| a measure of how much the quantity supplied of a good responds to a change in price of that good |
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Term
| formula for price elasticity of supply |
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Definition
% change in QS
% change in P |
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Term
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Definition
| the QS responds substantially to a change in price |
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Term
| Supply is inelastic if... |
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Definition
| the quantity supplied responds only slightly to a change in price |
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Term
| in most market what is the key determinant for elasticity of supply |
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Definition
| TIME. supply is more elastic in the long run than in the short run because firms cannot easily change the size of their factories to make more or less of a good |
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Term
| For low levels of quantity supplied the elasticity rises indicating what? |
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Definition
| firms respond substantially to a change in price. they have the capacity for production that is not being used. in a smaller increase in price makes it profitable for firms to begin using idle capacity |
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Term
| in NYC thomas sowell states that ______ apartments existed with _______ |
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Definition
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Term
| Thomas Sowell told us that in San Fran _____ % of city's rent controlled apartments _____________ |
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Definition
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Term
| the causes of too few people living in large apartments created what problems in NYC and SF |
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Definition
people were squeezing into small aprtments
they were making long commutes |
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Term
| Explain the housing cycle thomas sowell describes in his article |
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Definition
| because people go throughdifferent stages of life the "stock" of housing is shared and circulated |
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Term
| Sowell talks about senior citizens and mentions how.. |
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Definition
| with rent control they have little incentive to vacate and so they keep their 4 bedroom apartment and cause havoc to the cycle. Reduces the rate of housing turnover |
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Term
| NYC has the _______ and most ______ than any other major american city |
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Definition
longest lasting and most stringent
1: annual rate of turnover is less than 1/2 the nations average
2:proportion of people staying in their apartment longer than 20 years is 2x the national average |
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Term
| what are the effects of rent control on immigrant in NYC |
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Definition
| crowded into bunks in illegal boarding houses in the slums and are exposed to the drug trade and other illegal activity |
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Term
| when was minimum wage first established? How high?? |
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Definition
1938 as a provision of the Fair Labor Standards Act
-25 cents and hour |
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Term
| Who gains and who loses from minimum wage? |
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Definition
-upper middle class teenagers
-low skilled bottom of the economic latter disadvantaged minority youths |
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Term
| In regards to supply of agriculture supply increasing and being inelastic what are the consequences? |
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Definition
| a decrease in price causes total revenue to fall where as the quantity of wheat sold rises on slightly |
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Term
| If a new form of technology actually decreases total revenue for agriculture firms why do they adopt it? |
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Definition
| because each farmer is only a small part of the market for wheat, he or she takes whatever price is given |
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Term
| What happened when a price ceiling was set on the price of gasoline? |
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Definition
| increased price of crude oil led to an increase in the cost of producing gas. reducing the supply, so in a regular market the price would tend to increase but the price ceiling prevented the equil price from increasing. Leads to a severe shortage |
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Term
| What are the short run effects of a price ceiling |
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Definition
| in the short run the supply remains the same so people buy more and there is a small shortage. the people who show up first benefit |
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Term
| In the long run what are the effects |
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Definition
| In the long run the suppliers supply less and less with every production period creating more and more of a shortage. The only people who benefit are those who have no sense of appreciation for time. People have to show up earlier and earlier to get the goods they desire |
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Term
| what are the unintended consequences of agricultural price floors? |
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Definition
while farmers may be getting a decent price processors are refusing to buy crops because they cant sell it to consumers at an acceptable price SO
-cut employees
-leave the market
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Term
| How is there an upside to "price gouging" |
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Definition
| If the supplier sold the good at a reasonable price right after the disaster then he would sell out and people whoneeded the good and were desperately willing to pay for it would not be able to buy any because it would be sold out |
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Term
| in the price gouging example we see how forcing ________ down leads _________ out |
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Definition
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Term
| who is minimum wage most binding too |
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Definition
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