Econ Test 2

Front 1

price elasticity of demand

Back 1

consumers responsiveness to a price change

Front 2

elastic demand

Back 2

if a percentage change in price results in a larger percentage change in quantity demanded. (example: the price of cut flowers goes down 2 % and demand now goes up 4%)

Front 3

inelastic demand

Back 3

if a specific percentage change in price produces a smaller percentage change in quantity demanded. (example: 2% decline in price of coffee results in only a 1% increase in demand for coffee)

Front 4

unit elasticity

Back 4

same percentages

Front 5

perfectly inelastic

Back 5

when a price change results in no change whatsoever in the quantity demanded.

Front 6

perfectly elastic

Back 6

when a small price reduction causes buyers to increase their purchases from zero to all they can obtain

Front 7

total revenue test

Back 7

determining if demand is inelastic or elastic

Front 8

Total Revenue formula

Back 8

TR = P x Q

Front 9

Why do we use Total Revenue test

Back 9

to determine whether or not demand is inelastic or elastic

Front 10

if total revenue changes in the opposite direction from price then demand is _________

Back 10

elastic

Front 11

price elasticity of demand

Back 11

consumers responsiveness to a price change

Front 12

elastic demand

Back 12

if a percentage change in price results in a larger percentage change in quantity demanded. (example: the price of cut flowers goes down 2 % and demand now goes up 4%)

Front 13

inelastic demand

Back 13

if a specific percentage change in price produces a smaller percentage change in quantity demanded. (example: 2% decline in price of coffee results in only a 1% increase in demand for coffee)

Front 14

unit elasticity

Back 14

same percentages

Front 15

perfectly inelastic

Back 15

when a price change results in no change whatsoever in the quantity demanded.

Front 16

perfectly elastic

Back 16

when a small price reduction causes buyers to increase their purchases from zero to all they can obtain

Front 17

total revenue test

Back 17

amount a seller receives from the sale of a product in a particular time period

Front 18

Total Revenue formula

Back 18

TR = P x Q

Front 19

Why do we use Total Revenue test

Back 19

to determine whether or not demand is inelastic or elastic

Front 20

if total revenue changes in the opposite direction from price then demand is _________

Back 20

elastic

Front 21

short run

Back 21

too short of a time to change capacity but enough to make modifications. (example farmer applies more fertilizer to increase growth in plants because demand went up but can't produce more plants overnight)

Front 22

long run

Back 22

long enough for firms to adjust their plant sizes and for new firms to enter the industry (example: farmer having enough time to acquire more land)

Front 23

cross elasticity of demand formula

Back 23

%change in quantity demanded of product x/ %change in price of product y

Front 24

substitute goods

Back 24

x moves in the same direction as a change in the price of y. then x and y are substitutes. (example price of dasani water increases so then the purchase of cvs water increases) (positive cross elasticity)

Front 25

complementary goods

Back 25

x and y are together an increase in price of one decreases the demand for the other. (example: a decrease in the price of digital cameras will increase the amount of memory sticks purchased)

Front 26

consumer surplus

Back 26

benefit surplus received by a consumer in a market. maximum price customer is willing to pay for versus actual price

Front 27

higher prices _________ consumer surplus

Back 27

reduce

Front 28

lower prices _________ consumer surplus

Back 28

increase

Front 29

producer surplus

Back 29

difference between the actual price a producer receives and minimum acceptable price.

Front 30

allocative effiiciency occurs at quantity levels where three conditions exist

Back 30

MB = MC. maximum willingness to pay = minimum acceptable price. combined consumer and producer surplus is at a maximum

Front 31

efficiency losses

Back 31

reductions of combine consumer and producer surplus.

Front 32

law of diminishing marginal utility

Back 32

Usefulness or utility of a product decreases as the number of units of the product obtained by the customer increases.

Front 33

total utility

Back 33

total amount of satisfaction or pleasure a person derives from consuming some specific quantity. ex:10 extra units

Front 34

marginal utility

Back 34

extra satisfaction a consumer realizes from one additional unit

Front 35

utility maximizing rule

Back 35

consumer should allocate his money income so that the last dollar spent on each product yields the same amount of extra marginal utility

Front 36

accounting profit

Back 36

profit after fees are paid for

Front 37

normal profit

Back 37

the difference between total revenue and opportunity costs

Front 38

economic profit

Back 38

total revenue - economic cost (equals pure profit)

Front 39

total product

Back 39

total quantity of total output of a particular good or service produced

Front 40

marginal product

Back 40

the extra output or added product associated with adding a unit of a variable resource

Front 41

average product

Back 41

The average product of a factor in a firm or industry is its output divided by the amount of the factor employed

Front 42

law of diminishing returns

Back 42

a law affirming that to continue after a certain level of performance has been reached will result in a decline in effectiveness

Front 43

fixed costs

Back 43

costs that in total do not vary with changes in output

Front 44

variable

Back 44

costs that change with the level of output

Front 45

total cost

Back 45

sum of fixed and variable cost

Front 46

marginal cost

Back 46

the extra cost of producing one more unit of output.

Front 47

marginal cost formula

Back 47

mc= change in total cost/change in Q

Front 48

minimum efficient scale

Back 48

The minimum size a firm can be for it to be productively efficient

Front 49

natural monopoly

Back 49

When only one provider of a good or service exists, because something changed after it was established, and hinders others from entering the market