question
own price elasticity
answer
a measure of responsiveness of the quantity demanded to a change in price
question
demand is elastic for an absolute value
answer
greater than one
inelastic for less than one
inelastic for less than one
question
perfectly elastic demand curve
answer
a horizontal line reflecting a situation in which any price increase reduces quantity demanded to zero; the elasticity has an absolute value of infinity
question
perfectly inelastic demand
answer
the case where the quantity demanded is completely unresponsive to price and the price elasticity of demand equals zero
question
factors that effect elasticity
answer
substitutes
quality
portion of income
time
quality
portion of income
time
question
portion of income
answer
the larger the portion of income spent on the good the more elastic an individual's demand for the good
question
time
answer
elasticity of demand tends to be greater the longer the time period since the price change
question
elasticity ------ slope
answer
does not equal
question
income elasticity
answer
sensitivity of quantity demanded to a change in income
question
normal goods
answer
increase in income leads to an increase in quantity demanded
question
inferior goods
answer
increase in income leads to a decrease in quantity demanded
question
cross-price elasticity
answer
the ratio of the percentage change in the quantity demanded of a good to the percentage change in the price of a related good
question
complement products
answer
an increase in the price of a related good decreased demand for a good
question
substitution effect
answer
always acts to increase the consumption of a good that has fallen in price
question
...
answer
...
question
possible outcomes of a decrease in the price of good x
answer
the substitution effect is positive, and the income effect is also positive - consumption of good x will increase
the substitution effect is positive, and the income effect is negative but smaller than the substitution effect - consumption of good x will increase
the substitution effect is positive, and the income effect is negative but larger than the substitution effect - consumption of good x will decrease
the substitution effect is positive, and the income effect is negative but smaller than the substitution effect - consumption of good x will increase
the substitution effect is positive, and the income effect is negative but larger than the substitution effect - consumption of good x will decrease
question
Giffen good
answer
inferior good for which the income effect is greater than the substitution effect
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Veblen Effect
answer
a higher price makes the good more desirable
question
factors of production
answer
resources a firm uses to generate output
- land, labor, capital, and materials
- land, labor, capital, and materials
question
production function
answer
used for economic analysis and only considers two inputs - capital and labor
question
the output with only one worker is considered
answer
the marginal product of the first unit of labor
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diminishing marginal returns
answer
a level of production in which the marginal product of labor decreases as the number of workers increases
question
short run
answer
time period over which some factors of production are fixed
question
long run
answer
all factors of production are variable
question
short-run shutdown point
answer
if average revenue is less than average variable cost in the short run, the firm should shut down
question
Long run shut down point
answer
if average revenue is less than average total cost in the long term
question
Average Return greater than or equal to Average Total Cost
Average Return greater than or equal to Average Variable Cost, but Average Return is less than Average Total Cost
Average Return is less than Average Variable Cost
Average Return greater than or equal to Average Variable Cost, but Average Return is less than Average Total Cost
Average Return is less than Average Variable Cost
answer
the firm should stay in the market in both the short and long run
the firm should stay in the market in the short run but will exit the market in the long run
the firm should shut down in the short run and exit the market in the long run
the firm should stay in the market in the short run but will exit the market in the long run
the firm should shut down in the short run and exit the market in the long run
question
Price-Searcher Firms Shutdown?
TR=TC
TC>TR>TVC
TR<TVC
TR=TC
TC>TR>TVC
TR<TVC
answer
breakeven
firm should continue to operate int he short run but shut down in long run
firm should shut down in the short and long run
firm should continue to operate int he short run but shut down in long run
firm should shut down in the short and long run
question
minimum efficient scale
answer
The lowest rate of output at which a firm takes full advantage of economies of scale
question
economies of scale
answer
factors that cause a producer's average cost per unit to fall as output rises
increase its competitiveness by expanding production and reducing costs
increase its competitiveness by expanding production and reducing costs
question
diseconomies of scale
answer
the property whereby long-run average total cost rises as the quantity of output increases
want to decrease output and move back to minimum efficient scale
want to decrease output and move back to minimum efficient scale
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