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Own-price elasticity
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measure of the responsiveness of the quantity demanded to a change in price
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income elasticity
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sensitivity of quantity demanded to a change in income
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cross-price elasticity of demand
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ratio of the percentage change in the quantity demanded of a good to the percentage change in the price of a related good
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normal good
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an increase in income leads to an increase in quantity demanded
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inferior good
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an increase in income leads to a decrease in quantity demanded
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substitution effect
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When the price of Good X decreases, there is a shift in consumption towards more of Good X. Always acts to increase consumption of a good that goes down in price
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income effect
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can either increase or decrease consumption of a good when price falls
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Giffen good
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Lower price, smaller quantity demanded b/c inc effect > substitution effect. an inferior good for which the negative income effect outweighs the positive substitution effect when price falls. theoretical and would have an upward-sloping demand curve.
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Veblen good
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one for which a higher price makes the good more desirable. Gucci gang
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Factors of production
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resources a firm uses to generate output. Includes: land, labor, capital, and materials
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production function
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quantity of output that a firm can produce can be thought of as a function of the amounts of capital and labor employed
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short run
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the time period over which some factors of production are fixed
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long run
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all factors of production (costs) are variable in the _______ ___
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Shutdown and Breakeven
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at price P1, price and average revenue equal average total cost.
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price-searcher firms
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those that face downward-sloping demand curves
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price taker
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a firm under perfect competition
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minimum efficient scale (Q*)
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the scale or plant size at which the average total cost of production is at a minimum
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