question
Elasticity of Demand
answer
measures how responsive the quantity demanded is to a change in price; more responsive equals more elastic
question
Elasticity of Demand Equation
answer
Percent Change in Quantity Demanded / Percent Change in Price
question
Elasticity of Demand > 1
answer
Elastic
question
Elasticity of Demand < 1
answer
Inelastic
question
Elasticity of Demand = 0
answer
Unit Elastic
question
Revenue Equation
answer
Price x Quantity
question
Elasticity of Supply
answer
Measures how responsive the quantity supplied is to a change in price
question
Elasticity of Supply Equation
answer
Percent Change in Quantity Supplied / Percent Change in Price
question
Midpoint Formula for Elasticity of Supply
answer
Change in quantity supplied/average quantity
divided by
change in price/average price
or
Qafter - Qbefore / (Qafter +Qbefore)/2
divided by
Pafter - Pbefore / (Pafter +Pbefore)/2
divided by
change in price/average price
or
Qafter - Qbefore / (Qafter +Qbefore)/2
divided by
Pafter - Pbefore / (Pafter +Pbefore)/2
question
the Wedge Tax
answer
Price paid by buyers - Price received by sellers
question
the Subsidy
answer
Price received by sellers - Price paid by buyers
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Great Economic Problem
answer
is to arrange our limited resources to satisfy as many of our wants as possible
question
Speculation
answer
is the attempt to profit from future price changes
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Futures
answer
are standardized contracts to buy or sell specified quantities of a commodity or financial instrument at a specific price with delivery set at a specified time in the future
question
Prediction Market
answer
is a speculative market designed so that prices can be interpreted as probabilities and used to make predictions
question
Price Ceiling
answer
is a maximum price allowed by law
question
Deadweight Loss
answer
is the total of lost of consumer and producer surplus when not all mutually profitable gains from trade are exploited. Price ceilings create a deadweight loss
question
Rent Control
answer
is a price ceiling on rental housing
question
Price Floor
answer
is a minimum price allowed by law
question
Protectionism
answer
the economic policy of restraining trade through quotas, tariffs, or other regulations that burden foreign producers but not domestic producers
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Tariff
answer
a tax on imports
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Trade Quota
answer
is a restriction on the quantity of goods that can be imported; Imports greater than the quota amount are forbidden or heavily taxed
question
Private Cost
answer
is a cost paid by the consumer or the producer
question
External Cost
answer
is a cost paid by people other than the consumer or hte producer trading in the market
question
Social Cost
answer
is the cost to everyone: the private cost plus external cost
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Externalities
answer
are external costs or external benefits that fall on bystanders
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Social Surplus
answer
is consumer surplus plus producer surplus plus everyone else's surplus
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Efficient Equilibrium
answer
is the price and quantity that maximizes social surplus
question
Efficient Quantity
answer
is the quantity that maximizes social surplus
question
Pigouvian Tax
answer
is a tax on a good with external costs
question
External Benefit
answer
is a benefit received by people other than the consumers or producers trading in the market
question
Pigouvian Subsidy
answer
is a subsidy on a good with external benefits
question
Transaction Costs
answer
are all the costs necessary to reach an agreement
question
Coase Theorem
answer
posits that if transaction costs are low and property rights are clearly defined, private bargains will ensure that the market equilibrium is efficient even when there are externalities
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