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16 Cards in this Set
- Front
- Back
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Price elasticity of demand equals infinity, then the demand curve is?
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Horizontal, because it means that at current price, there is infinite demand for the good.
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A small value (less than one) for the price elasticity of demand indicates that consumers are very price[ ]
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insensitive, because the percentage change in quantity demanded is less than absolute value of percentage change in the price of good. They demand a similar amount of good even though price has increased
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Elastic
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Percentage change in quantity demanded will exceed the percentage change in income. (E>1)
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Inelastic
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Percentage change in quantity demanded is less than the percentage change in income. (E<1)
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negative sign
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inferior good
OR complements |
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positive sign
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superior/normal good
OR substittues |
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Consumer Surplus
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always on top of the line
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Producer Surplus
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always below the line
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Reasons for Demand Downward sloping
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1) Simple Reasoning: people buy more units at lower prices
2) Diminishing Marginal Utility- the consumer gets less and less additional satisfaction from consuming equal additional units of the same good. 3) Substitution Effect- if the price of one good falls relative to its substitutes, then consumers will buy more of it. 4) Income effect- as the price of a good falls, the consumer can afford more units of that good. |
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What causes "quantity demanded" to change
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PRICE
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What shifts, or changes Demand?
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1)Number of consumers
2)Consumer tastes and preferences 3)Consumer Income 4) Prices of related goods 5) Consumer expectations of income and prices |
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Why is Supply upward sloping?
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1) Simple reasoning- producers like to sell more units at higher prices.
2) Diminishing Marginal Returns- producer gets less and less additional product, or returns, from applying additional variable resources. 3) Scarcity of Inputs |
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What causes quantity supplied to change?
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PRICE
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What shifts, or changes, supply?
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1) Number of Producers
2) Costs of Production 3) Technological Change 4) Prices of Other Produced Goods 5) Taxes and Subsidies 6) Producer Expectations |
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Quotas
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Quantity control
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Demand line is vertical, it means?
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At any price people will buy, no substitute
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