question
Slope
answer
Change in price over change in quantity
question
Cross Price Elasticity
answer
% Change in Quantity Demanded of a good A given a percentage change in Price of good B
question
Price Elasticity of Supply
answer
% change in quantity supplied/ % change in price
Perfectly Inelastic=0
Inelastic <1
Unit Elastic=1
Elastic >1
Perfectly Elastic is infinity
**Time is most important factor for determining price elasticity of supply
Perfectly Inelastic=0
Inelastic <1
Unit Elastic=1
Elastic >1
Perfectly Elastic is infinity
**Time is most important factor for determining price elasticity of supply
question
A movement from A to B
answer
Shift in quantity demanded. Only change is the price of the good.
question
A movement from D1 to D2
answer
Shift in demand. Increase: Shifts to right
question
Total Cost
answer
Cost of all the inputs a firm uses in production
TC=wL + rK
W is the wage per unit labor
R is the per unit rental rate of capital
Avg. Total Cost x Quantity
Fixed Cost + Variable Cost
TC=wL + rK
W is the wage per unit labor
R is the per unit rental rate of capital
Avg. Total Cost x Quantity
Fixed Cost + Variable Cost
question
Profit
answer
Total Revenue-Total Cost
(Price-Avg. Total Cost) x Quantity
(Price-Avg. Total Cost) x Quantity
question
Total Revenue
answer
Price x Quantity
Amount of funds received by a seller of a good/service
Maximized at equilibrium
Amount of funds received by a seller of a good/service
Maximized at equilibrium
question
variable costs
answer
costs that change as output changes
question
Avg. Revenue
answer
Total Revenue/Quantity
question
Marginal Revenue
answer
Change in Total Revenue/Change in Quantity
(PRICE)
(PRICE)
question
Elasticity
answer
Percentage change in A/Percentage change in B
A is quantity demanded. B is price.
A is quantity demanded. B is price.
question
Income Elasticity of Demand
answer
% change in Quantity Demanded/ % change in in income
Greater than 0=normal
Less than 0=inferior
>1=luxury
<1=necessity
Greater than 0=normal
Less than 0=inferior
>1=luxury
<1=necessity
question
Key determinants of price elasticity of demand
answer
Availability of close substitutes, passage of time, necessities vs. luxuries, def. of a market, share of good in consumers budget
**Availability of close substitutes: most important
**Availability of close substitutes: most important
question
Price elasticity of demand
answer
% change in quantity demanded/% change in price
question
Elastic Demand
answer
When % change in the quantity demanded is GREATER than the % change in price (greater than 1 in abs. value)
question
Inelastic Demand
answer
When % change in quantity demanded is LESS than % change in price (less than 1 in abs. value)
question
Unit Elastic Demand
answer
When % change in quantity demanded is EQUAL to the % change in price (equal to 1 in abs. value)
question
Perfectly Inelastic Demand
answer
Where quantity demanded is completely unresponsive to price and price elasticity of demand equals zero
question
Perfectly Elastic Demand
answer
Where quantity demanded is infinitely responsive to price and price elasticity of demand equals infinity
question
Passage of time
answer
more time that passes, more elastic the demand for a product becomes
question
Availability of close substitutes
answer
If a product has more substitutes available, it will have more elastic demand. If a product has fewer substitutes available, it will have less elastic demand
question
Luxuries vs. Necessities
answer
The demand curve for a luxury is more elastic than the demand curve for a necessity
question
Def. of a market
answer
more narrowly we define a market, the more elastic the demand will be
question
Share of a good in a consumer's budget
answer
the demand for a good will be more elastic the larger the share of the good in the avg. consumer's budget
question
Utility
answer
enjoyment or satisfaction people receive from consuming goods and services
question
Marginal Utility
answer
change in total utility a person receives from consuming one additional unit of a good or service
question
Law of diminishing marginal utility
answer
the principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time
question
Budget constraint
answer
limited amount of income available to consumers to spend on goods and services
question
Income Effect
answer
change in quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding all other factors constant
question
substitution effect
answer
change in quantity demanded of a good that results from a change in price making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power
question
network externalities
answer
situation in which the usefulness of a product increases with the number of consumers who use it
question
opportunity cost
answer
highest valued alternative that must be given up to engage in an activity
question
endowment effect
answer
tendency of people to be unwilling to sell a good they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it
question
sunk cost
answer
a cost that has already been paid and cannot be recovered
question
technological change
answer
a change in the ability of a firm to produce a given level of output with a given quantity of inputs
question
technology
answer
processes a firm uses to turn inputs into outputs of goods and services
question
short run
answer
period of time during which at least one of a firms inputs is fixed
question
long run
answer
period of time in which a firm can vary all its inputs, adopt new technology and increase or decrease the size of the physical plant
question
fixed costs
answer
costs that remain constant as output changes
question
explicit costs
answer
a cost that involves spending money
question
implicit cost
answer
a nonmonetary opportunity cost
question
avg. total cost
answer
total cost/quantity of output produced
question
production function
answer
relationship btwn the inputs employed by a firm and the max output it can produce with those inputs
question
marginal product of labor
answer
additional output a firm produces as a result of hiring one more worker
question
law of diminishing returns
answer
principle that as some point adding more of a variable input to the same amount of fixed input will cause the marginal product of the variable input to decline
question
avg. product of labor
answer
total output produced by a firm divided by the quantity of workers
question
marginal cost
answer
the change in a firm's total cost from producing one more unit of a good or service
question
avg. fixed cost
answer
fixed cost/quantity of output produced
question
avg. variable cost
answer
variable cost/quantity of output produced
question
long run avg. cost curve
answer
curve that shows the lowest cost at which the firm is able to produce a given quantity of output in the long run when no inputs are fixed
question
economies of scale
answer
situation when a firm's LRAC fall as it increases the quantity of output it produces
question
constant returns to scale
answer
a firm's LRAC remains unchanged as it increases output
question
minimum efficient scale
answer
level of output at which all economies of scale are exhausted
question
diseconomies of scale
answer
firm's LRAC rises as the firm increases output
question
perfectly competitive market
answer
a market that meets the conditions of many buyers and sellers, all firms selling identical products and no barriers to new firms entering the market
question
price takers
answer
a buyer or seller that is unable to affect the market price
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
