Term
| Economic policies may have ultimate effects that differ from the intended effects is the definition of... |
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Definition
| The Principle of Unintended Circumstances |
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Term
| The intended effect of a price ceiling |
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Definition
it reduces the product's price
(benefits the consumers) |
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Term
| the unintended effect of a price ceiling |
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Definition
| it creates a shortage of the product |
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Term
| What is an example of a price ceiling? |
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Definition
| Gasoline Price controls (think 1970s) |
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Term
| The intended effect of a price floor |
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Definition
to raise the product's price
(benefits the producers) |
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Term
| The unintended effect of a price floor |
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Definition
| it creates a surplus of the product |
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Term
| What are some examples of price floors? |
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Definition
| minimum wage and agricultural price supports |
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Term
| A measure of the responsiveness of the quantity demanded of a good to a change in its price is the definition of... |
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Definition
| Price Elasticity of Demand |
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Term
| When the quantity of a good demanded does not change in response to price change, demand is... |
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Definition
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Term
| When price is raised by 10% and quantity demanded drops 30%, what is the price elasticity of demand? |
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Definition
0.30/0.10 = 3.00
(%changeQ/%changeP) |
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Term
| Economists would classify the demand for a product that has an price elasticity of 3.00 as... |
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Definition
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Term
| If the price elasticity is 3.00, what will happen when price increases? |
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Definition
| total revenues will decrease |
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Term
| If the price increased from $3.00 to $3.50, and sales decreased from 25 to 20 units, what is the price elasticity of demand? |
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Definition
(5/45)/(0.50/6.50) = 1.44
(change in Q/total Q)/(change in P/total P) |
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Term
| When the price raises from $5 to $6, yet there is an increase in revenue from $4800 to $6000, what is the demand? |
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Definition
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Term
| Generally speaking, the smaller the # of close substitutes for a good... |
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Definition
| the less elastic the demand for the good |
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Term
| Other things being equal, the value price of elasticity of demand will _________ as consumers' incomes spent of the good increases |
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Definition
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Term
| A measure of the responsiveness of the demand for a good to a change in income when all other things remain the same is the definition of... |
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Definition
| Income Elasticity of Demand |
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Term
| Economists would classify non-fed ground beef, with an income elasticity of demand value of -1.94 as... |
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Definition
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Term
| A measure of the responsiveness of the demand for a good (X) to a change in price of a substitute/complement (Y), defines what? |
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Definition
| Cross Elasticity of Demand |
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Term
| A measure of the responsiveness of the quantity supplied of a good to a change in price when all other things remain on sellers' plans remain the same, defines what? |
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Definition
| Price Elasticity of Supply |
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Term
| What is the most important determinant of price elasticity of supply? |
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Definition
| the amount of time producers have to adjust to a price change |
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Term
| What is the shortest economic time period? |
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Definition
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Term
| In what economic time period are some resources available and some resources are fixed? |
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Definition
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Term
| Supply is least elastic when? |
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Definition
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Term
| Supply is most elastic when? |
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Definition
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Term
| The analysis of the gasoline market between 9/10/01 and 9/11/01 was set in what time period? |
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Definition
| the immediate run (it was only a time span of 2 days) |
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Term
| (From 9/11 gas market analysis) The lines at the gas pumps and price gouging resulted from...? |
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Definition
| an increase in demand with perfectly inelastic supply |
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Term
| The effect of an excise tax imposed on producers of a good results in...? |
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Definition
| a downward shift of that good's supply curve |
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Term
| An excise tax will ultimately be paid by whom? |
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Definition
| by both the producers and the consumers |
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Term
| When the demand curve for a good is more elastic than the supply curve for that good (i.e. the demand curve is flatter), we predict that who will be be paying more from an excise tax? |
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Definition
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Term
| According to economic analysis, it costs money to produce goods and services because... |
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Definition
| the resources from which these goods/services are produced cost money to purchase |
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Term
| An increase in productivity (i.e. an increase in output per unit of input) will... |
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Definition
| decrease the cost per unit of output |
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Term
| What is an explicit cost? |
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Definition
| a cost that is paid in money |
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Term
| Accounting profit equals... |
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Definition
| total Revenues - explicit costs |
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Term
| The opportunity cost of an input is the value of that input... |
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Definition
| in its next-best alternative use |
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Term
| why do goods and services cost money to produce? |
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Definition
| because the economic resources from which they are produced cost money to purchase |
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Term
| What happens when there is an increase in productivity (i.e. more output per unit of input)? |
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Definition
| a decrease of cost per unit of output |
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Term
| What is the opportunity cost of an input? |
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Definition
| the value of that input in its next best alternative use |
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Term
| Economists assume that ___________ approximate the opp. cost of these inputs |
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Definition
| market prices (costs) of inputs |
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Term
|
Definition
| total revenues - explicit costs |
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Term
|
Definition
| accounting profit - implicit costs |
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Term
|
Definition
| costs paid in money (aka accounting costs) |
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Term
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Definition
| An opp. cost incurred by a firm when it uses a factor of production for which it does not make a direct monetary payment |
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Term
| Why is Implicit Cost (Used to Calculate Economic Profit) Relevant to Economists? |
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Definition
| Because implicit costs estimate the value of owner or firm contributed resources, so it helps economic profit provide a more complete profit picture than just an accounting profit |
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Term
| Principle of Unintended Consequences |
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Definition
-government policy actions that have ultimate effects that aren't what was intended (ex:price ceilings/floors)
-relates to Murphy's law (whatever can go wrong, will) |
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Term
| What are some problems with equilibrium price? |
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Definition
| Sellers might think it's too low, while buyers may think it's too high |
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Term
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Definition
| government regulation that places an upper limit on the price at which a particular good/service may be traded |
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Term
| What are some examples of price ceilings? |
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Definition
-rent ceilings
-gasoline price controls (1973-1980)
-usury (interest rates) laws |
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Term
| The effects of a Price Ceiling |
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Definition
Intended effect: lower prices, more demand for the product
Unintended effect: shortages, black markets form, alternative rationing schemes |
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Term
|
Definition
| a government regulation that places a lower limit on the price at which a particular good/service may be traded |
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Term
| The effects of a Price Floor |
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Definition
Intended effect: seller's revenue will increase due to higher selling price
Unintended effect: surpluses, wasted products, higher taxes/subsidies to manage the surpluses |
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Term
| Price Elasticity of Demand |
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Definition
| a measure of the responsiveness of the quantity demanded of a good to change its price (when all other influences on the buyers remain the same) |
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Term
| What is a formula for calculating Elasticity of Demand (Ed)? |
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Definition
| Ed=(% change in quantity demanded)/(% change in price) |
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Term
| What is the calculation-based (midpoint) formula for calculating Elasticity of Demand? |
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Definition
| Ed=(change in quantity demanded/quantity 1+quantity 2)/ (change in price/price 1+price2) |
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Term
|
Definition
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Term
|
Definition
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Term
| When is the demand elastic? |
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Definition
when the %change in Q > %change in P
-Ed > 1 |
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Term
| Elastic demand has a _____ curve |
|
Definition
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|
Term
|
Definition
when the %change in Q < %change in P
-Ed < 1 |
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Term
| Inelastic demand has a _____ curve |
|
Definition
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Term
|
Definition
quantity demanded changes by an infinite amount in response to any change in price
-Ed = infinity |
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Term
| Perfectly elastic demand has a _____ curve |
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Definition
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Term
| Perfectly Inelastic Demand |
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Definition
quantity demanded does not change when price changes
-Ed = 0 |
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Term
| Perfectly inelastic demand has a _____ curve |
|
Definition
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|
Term
| For most demand curves, Ed ______ as price increases |
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Definition
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|
Term
|
Definition
| Total Revenues = Price * Quantity |
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|
Term
| According to the Law of Demand, price and quantity are _______ related |
|
Definition
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|
Term
| When demand is price elastic, an increase in price will cause a/n _______ in total revenues |
|
Definition
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|
Term
| When demand is price inelastic, an increase in price will cause a/n _______ in total revenues |
|
Definition
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|
Term
| What happens to total revenues when a price is unitary elastic? |
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Definition
| a change in price will have no effect of TR |
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Term
| Proportion of Income Spent |
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Definition
| the value of Ed increases as the share of consumers' budgets spent on goods increases |
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Term
| What are the determinants of Price Elasticity of Demand? |
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Definition
-proportion of income spent
-availability of substitutes
-time elapsed since price change |
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Term
| Availability of Substitutes |
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Definition
| the value of Ed increases as the number of close substitutes for the good increases |
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Term
| Time Elapsed Since Price Change |
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Definition
| the value of Ed increases as consumers have more time to adjust to price changes |
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|
Term
| Income Elasticity of Demand (Ei) |
|
Definition
| A measure of the degree of responsiveness of the demand for a good to a change in income |
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Term
|
Definition
|
|
Term
|
Definition
|
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Term
|
Definition
| Income Inelastic Goods(Necessity) |
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Term
|
Definition
| Income Elastic Goods (Luxuries) |
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|
Term
| Cross-Elasticity of Demand (Ec) |
|
Definition
| A measure of the responsiveness of the demand for a good (X) to a change in the price of a substitute/complement good (Y) |
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|
Term
|
Definition
|
|
Term
|
Definition
|
|
Term
|
Definition
|
|
Term
| Price Elasticity of Supply (Es) |
|
Definition
The degree of responsiveness of sellers to a change in price
Es=%changeQ/%changeP |
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|
Term
| What is the most important determinant of Es (elasticity of supply)? |
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Definition
| the amount of time producers have to adjust to price changes |
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|
Term
| How to economists classify time periods? |
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Definition
| based on the producers ability to adjust to output by variability of resources |
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Term
|
Definition
| the more time producers have to adjust to price changes, the more time they can vary their inputs/outputs |
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|
Term
| What are the economic time periods? |
|
Definition
-Immediate Run
-Short Run
-Long Run |
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Term
|
Definition
(aka the momentary period or market period)
-the shortest time period
-all resources are fixed
-perfectly inelastic supply |
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Term
|
Definition
the supply company (the firm) has enough time to change its employment of some resources (ex:labor) but doesn't have time to change employment of other s (ex: capital)
-can only change output within the existing limits
-some resources are fixed, while some are variable |
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Term
|
Definition
time period is long enough for sellers to change all resources used in the production of a good/service
-firms can enter or leave markets if they wish
-all resources are variable |
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Term
|
Definition
the division of the burden of a tax between the buyer and the seller
-ex: tax imposed on cigarette producers |
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Term
| What happens when an excise tax is imposed? |
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Definition
-manufacturing costs rise, supply curve shifts left
-suppliers increase price of cigarettes
-this causes a reduction in revenues and less supply of cigarettes
-the decrease in revenues represents how much the suppliers paid in tax, whereas the increase in price represents how much the buyer paid in tax |
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Term
| other examples besides an excise tax that increase costs |
|
Definition
-crude oil
-legal settlements |
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Term
| When will sellers be paying more in a tax than buyers? |
|
Definition
| when demand is more elastic (flat) than supply |
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|
Term
| When will buyers be paying more in a tax than sellers? |
|
Definition
| when supply is more elastic (flat) than demand |
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Term
| who is the only winner when it comes to excise taxes? |
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Definition
| the government (receives tax revenues) |
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