Micro Economics Exam 2

Front 1

market demand

Back 1

the total quanitity purchsed by everyone at every price over some time period

Front 2

prestige good

Back 2

demanded in part because the price is high.

Front 3

market demand curve

Back 3

slopes downward towards the right. no vertical segments

Front 4

the absolute constraint on pricing by business forms

Back 4

charge a higher price and sell less
charger a lower price and sell more.

Front 5

the law of demand is an absolute constraint on

Back 5

pricing by businesses

Front 6

businessmen set any price they want: in the sense that it is a free country

Back 6

true

Front 7

businessmen set any price that they want: in the sense "unconstrained by facts"

Back 7

false

Front 8

increase in demand =

Back 8

an increase in the quantity demanded at every price

Front 9

decrease in demand =

Back 9

a decrease in the quantity demanded at every price.

Front 10

changed in quantity demanded: when price changes

Back 10

demand does not change. quantity changes.

Front 11

changes in price

Back 11

do not effect demand.

Front 12

ceteris paribus: other than price and quantity, what changes demand

Back 12

income, tastes, prices of related products

Front 13

demand changes: income- normal goods

Back 13

direct relation between income and demand

Front 14

demand changes: income- inferior goods

Back 14

goods you buy with a low income until able to afford better. i.e. kids in college
inverse relation between income and demand.

Front 15

demand changes: tastes

Back 15

all forms of individual prefernce.
rise in gas due to airbags in cars

Front 16

substitute goods

Back 16

alternative ways of satisfying the same need. Goods for which there is a direct relation between the price of one good and the demand for another.

Front 17

buying food an exception to the law of demand?

Back 17

no one actually buys "food" as a whole. we buy specific products.

Front 18

economize=

Back 18

substitute cheaper sources of satisfaction.

Front 19

10% increase in wood. who would respond?

Back 19

industrial engineers, contruction builders, businessmen. would shift for substitutes.

Front 20

when would consumers respond to a rise in the cost of wood?

Back 20

wooden furniture would be more expensive relative to plastic or metal furniture. shift to less expensive furniture

Front 21

every does not have to buy less for law of demand to hold,

Back 21

just some people do.

Front 22

is water an exception to the law of demand?

Back 22

no; false

Front 23

water: used for other purposes than drinking. amount used depends on

Back 23

price.

Front 24

average capita daily use of water in chicago, new york and LA

Back 24

230- used to cool down steel
NY and LA= 150

Front 25

average capita daily use of water in SD and Boston

Back 25

120
110

Front 26

to reduce consumption of water: jawboning

Back 26

talking to people and trying ot persuade them to use less. Morally intimidate people to sacrifice

Front 27

to reduce consumption of water: pass laws

Back 27

use water police; force people to sacrifice because it covers everybody. gives no motive to save water except not to pay a fine.

Front 28

to reduce consumption of water: raise price

Back 28

law of demand in effect. nobodys as to sacrifice

Front 29

at higher prices, water

Back 29

is more worth saving, reduction of waste costs money.

Front 30

SAVING WATER IS

Back 30

NOT A SACRIFICE AT HIGHER PRICES.

Front 31

every does not have to buy less for law of demand to hold,

Back 31

just some people do.

Front 32

is water an exception to the law of demand?

Back 32

no; false

Front 33

water: used for other purposes than drinking. amount used depends on

Back 33

price.

Front 34

doubling of water prices would reduce

Back 34

household water consumption by about 30-50% in one year.

Front 35

Fall in the price of salt,

Back 35

would not increase use of household seasoning. would effect bigger things like salting roads in the winter.

Front 36

With the fall of the price of something,

Back 36

other uses for a product become more profitable, impossible for outsiders to predict.

Front 37

electricity in new york in households is used

Back 37

half as much when compared to other cities. it is twice as much in ny

Front 38

introspection

Back 38

focus of attention turned inward to your own mental processes

Front 39

a higher price makes you

Back 39

less inclined to buy and vice versa

Front 40

a higher price means you can

Back 40

buy less of other things.

Front 41

the law of demand is

Back 41

a law of markets. not a law of individual actions, but of large amounts of people

Front 42

standard of living=

Back 42

goods and services you use and enjoy

Front 43

considered objection to law of demand: when people go grocery shopping

Back 43

they do not look at the prices because they either know or think they know the prices. if the price has risen it wouldnt rise so much to not let them buy it.

Front 44

everyone looks at the prices of items

Back 44

when they dont know the price.

Front 45

3 alternatives to looking at prices on some items.

Back 45

1. look at price and buy
2. look at price, and put item back
3. look at price and pause, and consider.

Front 46

margin of choice: enforces law of demand

Back 46

(edge of decision) if you buy, you would not hav bought at a slightly higher price. if you dont buy, you owuld have bought at a slightly lower price.

Front 47

margin of choice: some people in this position for every good

Back 47

makes the law of demand true. change in price changes what they do

Front 48

DIRECT EVIDENCE FOR AND CONFIRMATION OF THE LAW OF DEMAND

Back 48

PEOPLE ON THE MARGIN OF CHOICE

Front 49

direct evidence for law of demand:sales

Back 49

merchants dont advertise rises in prices. they advertise lower prices to increase quantity they sell

Front 50

direct evidence for law of demand: prices of fruit and vegs. when in season

Back 50

larger quanitities can only be sold at lower prices. no becuz transportation cost more.

Front 51

direct evidence for law of demand: more basic. low quality goods sell

Back 51

for lower prices than high quality goods.

Front 52

if there was no law of demand, price of low quality goods

Back 52

could be raised without reducing quantity sold, becuz quantity demanded would decrease.

Front 53

direct evidence for law of demand: prices

Back 53

the fundamental fact for law of demand.

Front 54

if prices could rise without reducing the

Back 54

quantity sold, profits rise without limit.
infinite prices= no prices

Front 55

capacity=

Back 55

maximum amount that can be produced.

Front 56

the law of supply

Back 56

direct relation between price and quanitity supplied.

Front 57

change in technology:

Back 57

reduces costs. change in technology to produce new products is not considered in terms of supply.

Front 58

ceteris paribus: the costs of production

Back 58

prices of the factors of production and technological change.

Front 59

the supply curve

Back 59

slopes upward to the right.

Front 60

factors of production

Back 60

land, labor, capital

Front 61

prices rise and supply

Back 61

is not effected, defined over all prices

Front 62

the quantity produced at every price is

Back 62

is the profit maximizing quantity.

Front 63

market supply

Back 63

the quantity supplied at every price by every firm in the industry

Front 64

price elasticity of demand

Back 64

the responsiveness of the change in quantity demanded to change in a price.

Front 65

elasticity

Back 65

responsiveness of consumers to a change in price. the responsiveness of one variable to another. measured by change in quantity demanded.

Front 66

elastic demand

Back 66

more sensitive. big change in quantity demanded for give change in price. E>1
1% chagen in price causes more than 1% change in quantity

Front 67

inelastic demand

Back 67

small change in quantity demanded for given change in price. E<1
1% change in price causes less than 1% change in quantity

Front 68

the measurement for elasticity/inelasticity

Back 68

the percentage change in quantity demanded for a 1% change in price.

Front 69

elasticity equation

Back 69

change in Q/Q / change in P/P
pure number independant of units.

Front 70

elastic measurement

Back 70

% change in quantity is greater than % change in price.
1% change in prices causes more than 1% change in quantity demanded
numberator greater than denominator

Front 71

inelastic measurement

Back 71

% change in quantity less than % change in price.
1% change in price causes less than 1% change in quantity demanded.
numerator less than denominator

Front 72

unitary elasticity measurement

Back 72

% change in quantity = % change in price.
1% change in price causes 1% change in quantity demanded numerator and denominator are equal.

Front 73

total revenue equation

Back 73

TR = P x Q.
P and Q are inversely related

Front 74

elasticity and total revenue: for any change in price, change in Q

Back 74

has oppositve effect on TR

Front 75

elastic demand. total revenue and prices.

Back 75

TR and P are inversely related.

Front 76

inelastic demand. total revenue and prices

Back 76

TR and P are directly related.

Front 77

Unitary elastic demand: changes in price causes

Back 77

no change in total revenue

Front 78

Unitary elastic demand: %change in P =

Back 78

% change in Q

Front 79

Unitary elastic demand: TR is unaffected

Back 79

by price changes

Front 80

more close substitutes for a product means

Back 80

great elasticity

Front 81

few close substitutes for a product means

Back 81

less elasticity

Front 82

in elasticity, closeness

Back 82

is more important than number

Front 83

one close substitute makes demand for a good

Back 83

elastic

Front 84

elasticity is greater for

Back 84

high cost goods than low cost goods

Front 85

larger percent budget means

Back 85

more elasticity

Front 86

smaller percent budget means

Back 86

less elasticity

Front 87

demand more elastic over

Back 87

longer periods of time

Front 88

very short run

Back 88

no enough time to produce anything. quantity supplied= the quantity being sold

Front 89

short run

Back 89

more can be produced, but not enough to change plant capacity. some factors and costs are fixed

Front 90

long run

Back 90

enough time to change plant capacity. no factors are fixed and no costs are fixed

Front 91

long run: constant cost industry

Back 91

different quantities are sold at the same price.

Front 92

long run: increasing cost industry

Back 92

as price increases, supply increases, and quantity increases
line slopes up and to the right.

Front 93

long run: decrease in cost industry

Back 93

as price falls, supply falls, and quantity sold rises.
supply line goes down and to the right

Front 94

primary determinant of elasticty is

Back 94

time
= greater elasticity

Front 95

mr. white teeth toothbrushes

Back 95

assuming you could sell all you want to sell at that price.

Front 96

an material item with the highest amount of elasticity

Back 96

the one with the highest price.
ie. automobiles, furs, refrigerators