Term
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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. |
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Term
| What is meant by Unit elasticity and how will it affect total revenue? |
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Definition
| Unit elastic=1 Percentage change in quantity demanded is same as percentage change in price. Total revenue does not change. |
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Term
| Be able to interpret the elasticity of different demand curves |
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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. |
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Term
| How does elasticity vary along a downward sloping linear demand curve? |
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Definition
| At midpoint unit elastic, above midpoint elastic, below inelasitc, for all linear downward sloping demand curves. |
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Term
| What factors affect price elasticity of demand? |
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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.
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Term
| What does cross elasticity of demand coefficient tell us about products? Be able to interpret these coefficients. Several Questions! |
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Definition
Cross elasticity of demand- tells wheter goods are substitutes or compliments. Positive=substitute, negative=compliments
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Term
| What does elasticity of supply measure? |
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Definition
| The responsiveness of quantity, supplied to change in price |
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Term
| Be able to interpret elasticity of supply. |
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Definition
Same greater 1=elastic
0=perfectly inelastic
less than 1
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Term
| What is meant by marginal benefit and marginal cost? |
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Definition
additonal benefit recieved from consuming one more unit of good.
MC- Additonal cost of producing one more unit
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Term
| What happens to marginal benefit as more of a good is consumed |
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Definition
It decreases
MB decrease as more is consumed also demand curve
Mc rises as more is produced is also supply curve |
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Term
What is a consumer surplus? (Formula:MB-Price=Consumer surplus)
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Definition
| Consumer surplus occurs when MB>Price. You have to pay. MB-Price=consumer surplus |
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Term
| What is producer surplus?(Formula: Price-MC=Producer surplus) |
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Definition
PS Price-Marginal cost of producing it.
Supply=MC
Demand=MB |
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Term
| Locate both Consumer surplus and Producer Surplus on graph |
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Definition
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Term
| What is a price floor and be able to give an example |
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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 |
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Term
| What is meant by deadweight loss? What can cause it? |
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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
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Term
| What are the causes of inefficiency in the market? |
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Definition
| Price floor, price ceiling, monopolies, extranalites, quotas, subsidy |
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Term
| What is a subsidy, quota, and monopoly How do they result in inefficiency? |
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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. |
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Term
| What are the results of a price ceiling? |
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Definition
shortage
Black Market
Increased oppurtunity cost |
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Term
| Price elasticity of demand |
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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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