question
elasticity
answer
responsiveness
question
price elasticity of demand (ED) =
answer
percentage change in Q.D./percentage change in price
ex. price ↑ 5% Q.D. ↓ 2% ED = 2/5
↓ 5% ED = 5/5
↓ 10% ED = 10/5
ex. price ↑ 5% Q.D. ↓ 2% ED = 2/5
↓ 5% ED = 5/5
↓ 10% ED = 10/5
question
remember, when given 2 of 3 (ED, ΔP, ΔQ) to find missing value...
answer
1. use ED equation
2. substitute values given as they are
3. use P ↑, Q.D. ↓ to determine arrow direction
P ↓, Q.D. ↑
2. substitute values given as they are
3. use P ↑, Q.D. ↓ to determine arrow direction
P ↓, Q.D. ↑
question
ED > 1
answer
demand is elastic
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ED < 1
answer
demand is inelastic
question
ED = 1
answer
demand is unit elastic
question
ED = 0
answer
demand is perfectly inelastic
question
ED = infinity
answer
demand is perfectly elastic
question
percentage change =
answer
[(latest value - previous value)/previous value] x 100
question
remember, when calculating percentage change...
answer
answer in % should indicate + or -
question
mid-point formula =
answer
{(latest value - previous value)/[(latest value + previous value)/2]} x 100
question
remember, when calculating mid-point...
answer
answer should be a % and should indicate + or -
question
price elasticity of demand graph
answer
P x Q
question
total revenue (TR) =
answer
↑ P, ↓ TR
↓ P, ↑ TR
↓ P, ↑ TR
question
demand is elastic when... (TR test)
answer
↑ P, ↑ TR
↓ P, ↓ TR
↓ P, ↓ TR
question
demand is inelastic when... (TR test)
answer
↑ in production of food grains
↑ supply
↓ price
demand is inelastic
TR ↓
↑ supply
↓ price
demand is inelastic
TR ↓
question
technological improvements in agriculture
answer
1. availability of substitutes
lot = coke demand is elastic
few = gas demand is inelastic
2. necessity (inelastic) of luxury good (elastic)
3. portion or fraction of income spent on a good
small - paper towels - inelastic
large - car - elastic
4. time
short period - inelastic
long period - elastic
lot = coke demand is elastic
few = gas demand is inelastic
2. necessity (inelastic) of luxury good (elastic)
3. portion or fraction of income spent on a good
small - paper towels - inelastic
large - car - elastic
4. time
short period - inelastic
long period - elastic
question
determinants of ED
answer
percentage change in Q.S./percentage change in price
ex. P ↑ 10% ES = 5/10
Q ↑ 5%
ex. P ↑ 10% ES = 5/10
Q ↑ 5%
question
price elasticity of supply (ES) =
answer
supply is elastic
question
ES > 1
answer
supply is inelastic
question
ES < 1
answer
supply is unit elastic
question
ES = 1
answer
supply is perfectly inelastic
question
ES = 0
answer
supply is perfectly elastic
question
ES = infinity
answer
1. Time
market period - Q.S. cannot be changed
perfectly inelastic
short run = fixed costs + variable costs
long run = variable - elastic
market period - Q.S. cannot be changed
perfectly inelastic
short run = fixed costs + variable costs
long run = variable - elastic
question
price elasticity of supply graph
answer
percentage change in Q.D./percentage change in income
question
determinants of ES
answer
income ↑ demand ↑
positive income elasticity of demand
positive income elasticity of demand
question
income elasticity of demand =
answer
income ↑ demand ↓
↓ ↑
negative income elasticity of demand
↓ ↑
negative income elasticity of demand
question
normal goods (income elasticity of demand)
answer
percentage change in Q.D. of good x/percentage change in Q.D. of good y
question
inferior goods (income elasticity of demand)
answer
x y
D↑ P↑
↓ ↓
positive cross elasticity of demand
D↑ P↑
↓ ↓
positive cross elasticity of demand
question
cross elasticity of demand =
answer
x y
D↓ P↑
↑ ↓
negative cross elasticity of demand
D↓ P↑
↑ ↓
negative cross elasticity of demand
question
substitute goods (cross elasticity of demand)
answer
satisfaction
question
complimentary goods (cross elasticity of demand)
answer
as one consumes more and more units of a given good, the additional satisfaction begins to decline
question
utility maximization
answer
utils
question
law of diminishing marginal utility
answer
add all the marginal utilities up to the current unit
ex. units marginal utility total utility
1 10 10
2 8 18
3 6 24
4 4 28
5 2 30
ex. units marginal utility total utility
1 10 10
2 8 18
3 6 24
4 4 28
5 2 30
question
utility is measured in...
answer
MU = P
question
to calculate total utility from marginal utility...
answer
MUx/Px = MUy/Py = ...
question
utility maximization rule or rational spending rule
answer
a curve showing the different combinations of two products that yield the same satisfaction or utility to a consumer
question
utility maximization rule for two or more goods
answer
a set of indifference curves, each representing a different level of utility, that together show the preferences of a consumer
question
indifference curve (IC)
answer
point K
question
indifference map
answer
total revenue - total cost
question
equilibrium at tangency
answer
explicit costs (monetary payment is made) + implicit costs (no monetary payment is made)
question
total profit =
answer
total revenue - explicit costs
question
economic costs =
answer
total revenue - explicit costs - implicit costs
question
accounting profit
answer
change in total product from current to previous data/change in units of labor from current to previous data
ex. units of labor total product marginal product
0 0
1 2 2
2 5 3
3 9 4
4 12 3
5 14 2
6 15 1
ex. units of labor total product marginal product
0 0
1 2 2
2 5 3
3 9 4
4 12 3
5 14 2
6 15 1
question
economic profit =
answer
given fixed resources as we increase units of a variable resource then after a while marginal product will begin to decline
question
to calculate marginal product...
answer
total product (Q)
total fixed cost (TFC) *given
total variable cost (TVC) given starts at 0
total cost (TC) = TFC + TVC
average fixed cost (AFC) = TFC/Q *starts at nothing
average variable cost (AVC) = TVC/Q *start at nothing
average total cost (ATC) = TC/Q *starts at nothing
marginal cost (MC) = change in TC/change in Q *starts at nothing
total fixed cost (TFC) *given
total variable cost (TVC) given starts at 0
total cost (TC) = TFC + TVC
average fixed cost (AFC) = TFC/Q *starts at nothing
average variable cost (AVC) = TVC/Q *start at nothing
average total cost (ATC) = TC/Q *starts at nothing
marginal cost (MC) = change in TC/change in Q *starts at nothing
question
law of diminishing returns
answer
economics of scale - inputs ↑10% output ↑>10%
constant returns to scale - input ↑10% output ↑10%
diseconomics of scale - input ↑10% output ↑10%
constant returns to scale - input ↑10% output ↑10%
diseconomics of scale - input ↑10% output ↑10%
question
law of diminishing returns table
answer
1. labor specialization
2. managerial specialization
3. efficient capital
4. advertising per unit
ex. output advertising per unit
1,000 $10,000 $10
↑2,500 $10,000 $5
2. managerial specialization
3. efficient capital
4. advertising per unit
ex. output advertising per unit
1,000 $10,000 $10
↑2,500 $10,000 $5
question
total costs curve
answer
1. coordination problem
2. incentive problem
2. incentive problem
question
average costs curve
answer
of economics of scale
question
long-run average total cost curve
answer
cost that has been made and cannot be recorded
ignore sunk cost in decision making
ignore sunk cost in decision making
question
economies of scale
answer
undefined
question
reasons for economics of scale
answer
undefined
question
reasons for deconomics of scale
answer
undefined
question
natural monopoly exists bc...
answer
undefined
question
sunk costs
answer
undefined
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