question
Price Elasticity of Demand
answer
-Measures how responsive quantity demanded is to price change; the percentage change in quantity demanded divided by the percentage change in price
-same answer if going from higher price to a lower price or the other way around
-makes not difference if measured in pounds, bushels, or tons
-makes not difference in currency used
-all that matters is the change in price
-price and quantity demanded are inversely related
-numerator and denominator have opposite signs; always results in a negative
-expressed as absolute value
-varies along the demand curve
-same answer if going from higher price to a lower price or the other way around
-makes not difference if measured in pounds, bushels, or tons
-makes not difference in currency used
-all that matters is the change in price
-price and quantity demanded are inversely related
-numerator and denominator have opposite signs; always results in a negative
-expressed as absolute value
-varies along the demand curve
question
Price Elasticity Formula
answer
Percentage change in quantity demanded divided by the percentage change in price; the average quantity and the average price are used as bases for computing percentage changes in quantity and in price
question
Inelastic Demand
answer
-A change in price has relatively little effect on quantity demanded; the percentage change in quantity demanded is less than the percentage change in the price; the resulting price elasticity has an absolute value less than 1.
-less revenue
-less revenue
question
unit-elastic demand
answer
-The percentage change in quantity demanded equals the percentage change in price; the resulting price elasticity has an absolute values of 1.0
-revenue remains unchanged
-revenue remains unchanged
question
elastic demand
answer
-a change in price has a relatively large effect on quantity demanded; the percentage change in quantity demanded exceed the percentage change in price; the resulting price elasticity has an absolute value exceeding 1.0.
-total revenue increases
-total revenue increases
question
total revenue
answer
-price manipulated by quantity demanded at that price
-TR= p (price) x q (quantity demanded)
-a lower price increases quantity demanded
-lower price means producers get less for each unit sold, which tends to decrease overall revenue
-TR= p (price) x q (quantity demanded)
-a lower price increases quantity demanded
-lower price means producers get less for each unit sold, which tends to decrease overall revenue
question
linear demand curve
answer
-a straight-line demand curve; such a demand curve has a constant slope but usually has a varying price elasticity
-constant slope
-different elasticity
-becomes less elastic as we move downward
-D upper half: elastic (E>1), a lower P increases TR
-D lower half: inelastic (E<1), a lower P decreases TR
-D midpoint: unit elastic (E=1)
-constant slope
-different elasticity
-becomes less elastic as we move downward
-D upper half: elastic (E>1), a lower P increases TR
-D lower half: inelastic (E<1), a lower P decreases TR
-D midpoint: unit elastic (E=1)
question
perfectly elastic demand curve
answer
-a horizontal line reflecting a situation in which any price increase would reduce quantity -demanded to zero; the elasticity has an absolute value of infinity
-consumers demanded all quantity offered for sale at p, but demanded nothing at price above p
-consumers demanded all quantity offered for sale at p, but demanded nothing at price above p
question
perfectly inelastic demand curve
answer
-a vertical line reflecting a situation in which any price change has no effect on the quantity demanded; the elasticity value is zero
-Vertical; E=0
-'price is no object'
-consumers demanded Q regardless of the price
-Vertical; E=0
-'price is no object'
-consumers demanded Q regardless of the price
question
unit-elastic demand curve
answer
-Everywhere along the demand curve, the percentage change in price causes an equal but offsetting percentage change in quantity demanded, so total revenue remains the same; the elasticity has an absolute value of 1.0
-% change in P causes an exact opposite % change in Q
-total revenue is the same for each p-q combination
-% change in P causes an exact opposite % change in Q
-total revenue is the same for each p-q combination
question
constant-elasticity demand curve
answer
-the type of demand that exists when price elasticity is the same everywhere along the curve' the elasticity value is unchanged
-horizontal E=infinity
-consumers do not tolerate P increases
-horizontal E=infinity
-consumers do not tolerate P increases
question
price elasticity of supply
answer
-measures the responsiveness of quantity supplied to a price change; the percentage change in quantity supplied divided by the percentage change in price
-if the price increases then the quantity supplied increases
-P and Q move in the same direction so the price elasticity of supply is a positive number
-if the price increases then the quantity supplied increases
-P and Q move in the same direction so the price elasticity of supply is a positive number
question
inelastic supply
answer
-a price change has relatively little effect on quantity supplied; the percentage change in quantity supplied is less than the percentage change in price; the price elasticity of supply is less than 1.0
-Es between 0 and 1
-Es between 0 and 1
question
unit-elastic supply
answer
-the percentage change in quantity supplied equals the percentage change in price; the price elasticity of supply equals 1.0
-Es=1
-Es=1
question
elastic supply
answer
-a price change has a relatively large effect on quantity supplied; the percentage change in quantity supplied exceeds the percentage change in price; the price elasticity of supply exceeds 1.0
-Es greater than 1
-Es greater than 1
question
perfectly elastic supply curve
answer
-a horizontal line reflecting a situation in which any price decrease drops the quantity supplied to zero; the elasticity value is infinity
-horizontal: Es= infinity
-producers supply 0 at a price below P
-firms supply any amount of output demanded at p, but supply 0 at prices below p
-horizontal: Es= infinity
-producers supply 0 at a price below P
-firms supply any amount of output demanded at p, but supply 0 at prices below p
question
perfectly inelastic supply curve
answer
-a vertical line reflecting a situation in which a price change has no effect on the quantity supplied; the elasticity value is zero
-Vertical: Es=0
-goods in fixed supply
-quantity supplied is independent of the price
-Vertical: Es=0
-goods in fixed supply
-quantity supplied is independent of the price
question
unit-elastic supply curve
answer
-a percentage change in price causes an identical percentage change in quantity supplied; depicted by a supply curve that is a straight line from the origin; the elasticity value equals 1.0
-% change in p causes an exact opposite % change in quantity
-S curve is a ray from the origin
-any % change p results in the same % change q supplied
-% change in p causes an exact opposite % change in quantity
-S curve is a ray from the origin
-any % change p results in the same % change q supplied
question
income elasticity value of demand
answer
-the percentage change in demand divided by the percentage change in consumer income; the value is positive for normal goods and negative for inferior goods
-normal goods:
-income inelastic:
-elasticity between 0 and 1
-necessities
-Income elastic
-elasticity >1
-luxuries
-normal goods:
-income inelastic:
-elasticity between 0 and 1
-necessities
-Income elastic
-elasticity >1
-luxuries
question
cross-price elasticity of demand
answer
the percentage change in the demand of one good divided by the percentage change in the price of another good; it's positive for substitutes, negative for compliments, and zero for unrelated goods.
question
elasticity
answer
a measure of responsiveness
question
When Ed (price elasticity of demand) is greater
answer
-the greater the availability of substitutes, and the more similar the substitutes
-the more important the good as a share of the consumer's budget
-the longer the period of adjustment (time)
-demand becomes more elastic over time
-the more important the good as a share of the consumer's budget
-the longer the period of adjustment (time)
-demand becomes more elastic over time
question
elasticity estimates
answer
short run:
-consumers have little time to adjust
long run:
-consumers can fully adjust to a price change, more elastic in the long run
-consumers have little time to adjust
long run:
-consumers can fully adjust to a price change, more elastic in the long run
question
determinants of supply elasticity (Es is greater when...)
answer
-if the marginal cost rises slowly as output expands
-the longer the period of adjustment (time)
-the longer the period of adjustment (time)
question
substitutes
answer
-if the increase of the price of one good leads to the increase in the demand for another good, their cross-price elasticity is positive and the two goods are substitutes
question
complements
answer
-if an increase in the price of one good leads to the decrease in the demand for another, their cross-price elasticity is negative and the goods are complements.
question
total unity
answer
the total satisfaction you derive from consumption; this could refer to either your total unity of consuming a particular good or your total unity from all consumption
question
marginal unity
answer
the change in your total unity from a one-unit change in your consumption of a good
question
law of diminishing marginal unity
answer
the more of a good a person consumes per period, the smaller the increase in total unity from consuming one more unit, the other things constant
question
consumer equilibrium
answer
the condition in which an individual consumer's budget is exhausted and the last dollar spent on each good yields the same marginal utility: therefore, utility is maximized
question
marginal valuation
answer
the dollar value of the marginal unity derived from consuming each additional unit of a good
question
consumer surplus
answer
the difference between the most a consumer would pay for a given quantity of a good and what the consumer actually pays
question
explicit cost
answer
opportunity cost of recourses employed by a firm that takes the form of cash payments
question
implicit cost
answer
a firm's opportunity cost of using its own resources or those provided by its owners without a corresponding cash payment
question
accounting profit
answer
a firm's total revenue minus its explicit costs
question
economic profit
answer
a firm's total revenue minus its explicit and implicit costs
question
normal profit
answer
the accounting profit earned when all resources earn their opportunity cost; equal to implicit cost
question
variable resource
answer
any resource that can be varied in the short run to increase or decrease production
question
fixed resource
answer
any resource that cannot be varied in the short run
question
short run
answer
a period during which at least of a firm's resources is fixed
question
long run
answer
a period during which all resources under the firm's control are variable
question
law of diminishing marginal returns
answer
as more of a variable resource is added to a given amount of other resources, marginal product eventually declines and could become negative
question
total product
answer
a firm's total output
question
production function
answer
the relationship between the amount of resources employed and a firm's total product
question
marginal production
answer
the change in total product that occurs when the use of a particular resource increase by one unit, all other resources constant
question
increasing marginal returns
answer
the marginal product of a variable resource increasing as each additional unit of that resource is employed
question
fixed cost
answer
any production cost that is dependent of the firm's rate of output
question
variable cost
answer
any production cost that changes as the rate of output changes
question
total cost
answer
the sum of fixed cost and variable cost, or TC= FC + VC
question
marginal cost
answer
the change in total cost resulting from a one-unit change in output; the change in total cost divided by the change in output, or MC= change in TC/ the change in Q
question
average variable cost
answer
variable cost divided by output or AVC= AFC + AVC
question
economies of a scale
answer
forces that reduce a firm's average cost as the scale of operation increases in the long run
question
diseconomies of scale
answer
forces that may eventually increase a firm's average cost as the scale of operation increases in the long run
question
long-run average cost curve
answer
a curve that indicates the lowest average cost of production at each rate of output when the size, or scale, of the firm varies; also called the planning curve
question
constant long-run average cost
answer
a condition that occurs if, over some range of output, long-run average cost neither increases nor decreases with changes in firm size
question
minimum efficient scale
answer
the lowest rate of output at which a firm takes full advantage of economies of scale
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
