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34 Cards in this Set
- Front
- Back
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the responsiveness or sensitivity of consumers to a price change
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price elasticity of demand
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a product is elastic if
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a specific percentage change in price results in a larger percentage change in quantity demanded. If E > 1
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a product is inelastic if
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a specific percentage change in price results in a smaller percentage change in quantity demanded. If E < 1
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a product is unit elastic if
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when the percentage change in price and the resulting percentage change in quantity demanded are the same. If E = 1
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a product is perfectly inelastic if
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when a price change results in no change whatsoever in the quantity demanded. (vertical line)
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a product is perfectly elastic if
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a price change causes a buyer to increase their purchase from zero to all they can obtain. (horizontal line)
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the total amount the seller receives from the sale of a product in a particular time period.
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total revenue
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how do you calculate total revenue
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multiplying the product price by the quantity sold. P X Q
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how do you determine if a demand is elastic or inelastic
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total-revenue test
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a measure of the responsiveness of producers to a change in the price of a product or resource
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price elasticity of supply
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the period that occurs when the time immediately after a change in market price is too short for producers to respond with a change in quantity supplied
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market period
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a period of time too short to change plant capacity but long enough to use the fixed-sized plant more or less intensively.
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short run
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a time period long enough for firms to adjust their plant sizes and for new firms to enter the industry
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long run
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measures how sensitive consumer purchases of one product, X, are to change in the price of some other product, Y
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cross elasticity of demand
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measures the degree to which consumers respond to a change in their incomes by buying more or less of a particular good
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income elasticity of demand
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the benefit surplus received by a consumer or consumers in a market
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consumer surplus
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the difference between the actual price a producer receives and the minimum acceptable price
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producer surplus
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reductions of combined consumer and producer surplus
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efficiency losses
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law of diminishing marginal utility
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principle that added satisfaction declines as a consumer acquires additional units of a given product
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what is utility
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want-satisfying power
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the total amount of satisfaction or pleasure a person derives from consuming some specific quantity
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total utility
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the extra satisfaction a consumer realizes from an additional unit of that product
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marginal utility
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to maximize satisfaction, the consumer should allocate his or her money income so that the last dollar spent on each product yields the same amount of extra (marginal) utility
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utility-maximizing rule
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consumer equilibrium
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when the consumer has balanced the utility-maximizing rule
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a payment that must be made to obtain and retain the services of a resource
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economic cost
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the amount of other products that must be forgone or sacrificed t produce a unit of a product
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opportunity cost
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the monetary payments a firm makes to those who supply labor services, materials, fuel, transportation services, etc
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explicit costs
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the opportunity costs of using the firms self-owned, self-emplyed resources
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implicit costs
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the payment made by a firm to obtain and retain entrepreneurial ability
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normal profit
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the total quantity or total output of a particular good or service produced
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total product
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the extra output or added product associated with adding a unit of variable resource
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marginal product
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law of diminishing returns
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assumes that technology is fixed and thus the techniques of a production do not change
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costs that in total do not vary with changes in output
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fixed costs
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costs that change with the level of output
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variable costs
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