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30 Cards in this Set
- Front
- Back
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elasticity of demand |
this measures the response of quantity demanded to a change in this good's own price |
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ED = 0 |
perfectly inelastic |
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ED = infinity, or negative infinity |
perfectly elastic |
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elasticity of supply |
this measures the response of quantity supplied to a change in this good's own price |
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first law of demand |
holding other relevant factors constant, the lower the price of a good, the greater will be the quantity demanded of the good |
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rule of substitutes |
when price of good X changes, the demand for good Y changes in the same direction |
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rule of compliments |
when the price of good X changes, the demand for good Y changes in the opposite direction |
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normal goods |
when incomes change, the demand for the good changes in the same direction (fun stuff, better quality products) |
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inferior goods |
when incomes change, the demand for good X changes in the opposite direction (cheaper, generic products) |
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x-vector |
everything else that could possibly shift a demand that doesn't fit into the other two categories |
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the principle of rising marginal cost |
the higher the rate of production, the higher the marginal cost of producing an additional unit of output |
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assert decision rule |
firms choose to produce at a rate such that marginal cost is equal to the price of the good |
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first law of supply |
holding other relevant factors constant, the higher the price of a good, the greater will be the quantity supplied |
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what implies shifts of the entire supply curve? |
changes in ceteris paribus conditions |
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an increase in input prices causes... |
an increase in the marginal cost of producing each unit (supply curve moves upward) |
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an improvement in technology causes... |
marginal costs to be lower. logically the same as a decrease in input price |
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deterioration in technology causes... |
marginal costs are higher due to the change. (increase in an input price -> decrease in supply) |
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equilibrium |
a state that will tend to persist unless disturbed by a change in one or more CP conditions. |
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what is total value to a consumer? |
what they are willing to pay |
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what are total expenditures to a consumer? |
what they HAD to pay |
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consumer surplus equals |
total value - total expenditures |
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what is total revenue to producers |
what they were paid |
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what is total cost to producers |
what they had to be paid to supply the goods |
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producer surplus equals |
total revenue - total cost |
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gains from trade equals |
consumer surplus + producer surplus |
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negative EOD + increase in price = |
decrease in quantity demanded |
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negative EOD + decrease in price = |
increased in quantity demanded |
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what does the elastic demand curve cause |
price and total expenditures move in opposite direction |
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what does the inelastic demand curve cause |
price and total expenditures move in same direction |
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what does unit elastic demand cause |
no change in expenditures no matter what price does |
