question
income elasticity of demand
answer
% change in quantity demanded / % change in income (dQ/dY * Y/Q)
question
substitution effect
answer
the change in quantity demanded when the good's price increases, holding other prices and consumer utility constant
question
income effect
answer
the change in quantity demanded when purchasing power (income) changes, holding prices constant.
question
MRS (marginal rate of substitution)
answer
- dq2/dq1 or the negative marginal utility of good 1/ marginal utility of good 2
question
MRT (marginal rate of transformation)
answer
- p1/p2
question
MPL (marginal product of labor)
answer
dq/dL
question
APL (average product of labor)
answer
q/L
question
MRTS (marginal rate of technical substitution)
answer
-MPL/MPK
question
law of diminishing marginal utility
answer
dMPL/dL
question
Returns to scale
answer
rate at which output increases as inputs are increased proportionately
question
constant returns to scale
answer
When input increased equals the increase in output
question
increasing returns to scale
answer
When input increase is less than then increase in output
question
decreasing returns to scale
answer
When increase in inputs is greater than the increase in output
question
Cobb-Douglas Returns to Scale
answer
q = AL^aK^b
a+b = 1 Constant RTS
a+b > 1 Increasing RTS
a+b < 1 Decreasing RTS
a+b = 1 Constant RTS
a+b > 1 Increasing RTS
a+b < 1 Decreasing RTS
question
CES (Constant Elasticity of Substitution utility function)
answer
[q1^𝞺 + q2^𝞺]^(1/𝞺).
0 != 𝞺 <= 1 , 𝞼 = 1/(1-𝞺)
0 != 𝞺 <= 1 , 𝞼 = 1/(1-𝞺)
question
Demand Functions of a CES
answer
qi = [pi^(1-𝞼)/(p1^(1-𝞼) + p2^(1-𝞼))] * (Y/pi)
i = 1, 2
i = 1, 2
question
Cobb-Douglas
answer
U(q1, q2) = q1^a * q2^b
question
Demand function of Cobb Douglas
answer
q1 = (a/a+b)(Y/p1) , q2 = (b/a+b)(Y/p2)
question
MRS of a Cobb Douglas
answer
-(a/a-1)(q2/q1)
question
Incident of a small per unit tax on consumer
answer
n / n - e (n = elasticity of supplier, e = elasticity of demand)
question
Profit Maximizing solution for Monopolists
answer
MR = MC
question
Long-Run Supply Curve
answer
Min of AC curve
question
Revenue
answer
p(x) * q
question
maximizing utility
answer
MRS = MRT
question
Profit maximizing scenario for competitive firms
answer
p = MC
question
Proft = 0 for competitive firms @
answer
MC = AC
question
Finding Shutdown Scenario
answer
q @ AVC = MC
if p < AVC(q) shutdown
if p < AVC(q) shutdown
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