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86 Cards in this Set
- Front
- Back
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What is Elasticity?
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Concept to measure how one economic variable responds in changes in another economic variable
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What is the Price Elasticity of Supply?
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The responsiveness of the quantity supplied of a good to changes in its price
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What is the Price Elasticity of Demand?
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The responsiveness of the quantity demanded of a good to changes in its price
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What is the formula for the price elasticity of demand?
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Price Elasticity of Demand = (Percentage change in quantity demanded/Percentage change in Price)
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True or False: Price elasticity of demand is NOT the same as the slope of the demand curve
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True
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Price elasticity of demand is ______ negative, so we use the _________ ______
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Price elasticity of demand is ALWAYS negative, so we use the absolute values
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When is Demand Elastic?
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Demand is elastic when the percentage change in quantity demanded is greater than the percentage chance in price
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The price elasticity of Elastic Demand is _______ than 1 in absolute value
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Greater
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When is Demand inelastic?
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Demand is inelastic when the percentage change in quantity demanded is less than the percentage change in price
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The price elasticity of inelastic Demand is ______ than 1 in absolute value
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Less
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When is demand unit elastic?
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Demand is Unit-Elastic when the percentage change in quantity demanded is equal to the percentage change in price
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The price elasticity of Unit-Elastic Demand is _____ to 1 in absolute value
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equal
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What is the mid-point formula
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Price Elasticity of Demand = {[Q2-Q1]/[(Q1+Q2)/2]}/{[P2-P1]/[(P1+P2)/2]}
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If two demand curves intersect, the one with _______ slope (in absolute value)is more elastic. The one with the ______ slope (in absolute value) is less elastic
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Smaller, Larger
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Explain Perfectly Inelastic Demand
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The case where the quantity demanded is completely unresponsive to price and the price elasticity of demand equals zero
The demand curve is a vertical line |
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Explain Perfectly Elastic Demand
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The case where the quantity demanded is infinitely responsive to price and its price elasticity of demand equals infinity
The demand curve is a horizontal line |
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If Demand is elastic
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then the absolute value of price elasticity is greater than 1
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If demand is inelastic
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then the absolute value of price elasticity is less than 1
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If demand is unit-elastic
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then the absolute value of price elasticity is equal to 1
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If demand is perfectly elastic
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then the absolute value of price elasticity is equal to infinity
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If demand is perfectly inelastic
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then the absolute value of price elasticity is equal to 0
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If a product has more substitutes available, it will have ____ elastic demand
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more
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If a product has less substitutes available, it will have ____ elastic demand
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less
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The more time that passes, the ____ elastic the demand for a product becomes
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more
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The demand curve for a luxury is ____ elastic than the demand curve for a necessity
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more
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The more narrowly we define a market, the ____ elastic demand will be
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more
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The demand for a good will be ____ elastic the larger the share of the good in the average consumer’s budget
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more
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What is total revenue and how is it calculated?
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The total amount of funds received by a seller of a good or service
Calculated by multiplying price per unit by the number of units sold |
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When demand is _________, the price and total revenue move in the same direction
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inelastic
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When demand is elastic, the price and total revenue move _________
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Inversely
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If demand is elastic, then an increase in price _______ revenue, because the decrease in quantity demanded is proportionally _______ than the increase in price
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reduces, greater
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If demand is elastic, then an decrease in price _________ revenue, because the increase in quantity demanded is proportionally _______ than the decrease in price
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increases, greater
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If demand is inelastic, then an increase in price _______ revenue, because the decrease in quantity demanded is proportionally _______ than the increase in price
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increases, smaller
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If demand is inelastic, then a decrease in price _______ revenue, because the decrease in quantity demanded is proportionally _______ than the decrease price
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reduces, smaller
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If demand is unit elastic, then an increase in price ______ revenue, because the decrease in quantity demanded is proportionally _______ as the increase in price
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does not affect, the same
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If demand is unit elastic, then an decrease in price ______ revenue, because the decrease in quantity demanded is proportionally _______ as the increase in price
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does not affect, the same
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What is the Cross-Price Elasticity of Demand?
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The percentage change in quantity demanded of one good divided by the percentage change in the price of another good
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What is the formula for Cross-Price Elasticity of Demand?
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Cross-price elasticity of demand = (% change in quantity demanded of one good/% change in price of another good)
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If products are substitutes, then the cross price elasticity of demand will be ________
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positive
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If products are complements, then the cross price elasticity of demand will be ________
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negative
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If products are unrelated, then the cross price elasticity of demand will be _______
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zero
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What is Income Elasticity of Demand
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Measures the responsiveness of quantity demanded to changed in income
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What is the formula for income elasticity of demand?
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Income elasticity of demand = (Percentage change in quantity demanded/percentage change in income)
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If the quantity demanded of a good increases as income increases, then the good is a _____ ____
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Normal Good
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A good is a ______ if the quantity demanded is very responsive to changes in income
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luxury
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A good is a _________ if the quantity demanded is not very responsive to changes in income
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Necessity
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A good is _______ if the quantity demanded falls when income increases
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Inferior
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In the income elasticity of demand is positive but less than 1, then the good is _____ ___ _ ________
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normal and a necessity.
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In the income elasticity of demand is positive and greater than 1, then the good is ______ ___ _ ______
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normal and a luxury.
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In the income elasticity of demand is negative, then the good is _______
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inferior
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What is the Price Elasticity of Supply
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The responsiveness of the quantity supplied to a change in price
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What is the formula for Price Elasticity of Supply?
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Price elasticity of supply = ( % Change in quantity supplied/ % change in price)
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Price elasticity of supply will always be a _______ number because both supply curves are ______ sloping
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positive, upward
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If the price elasticity of supply is less than 1, supply is _______
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Inelastic
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If the price elasticity of supply is greater than 1, supply is _______
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Elastic
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If the price elasticity of supply equals 1, the supply is ___________
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Unit-Elastic
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If supply is perfectly elastic, the value of price elasticity is equal to ________, and the supply curve is __________
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If supply is perfectly elastic, the value of price elasticity is equal to infinity, and the supply curve is horizontal
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If supply is perfectly inelastic, the value of price elasticity is equal to ______, and the supply curve is ________
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If supply is perfectly inelastic, the value of price elasticity is equal to 0, and the supply curve is vertical
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What is the economic definition of technology?
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The processes a firm uses to turn inputs into outputs of goods and services
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What is a technological change?
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A change in the ability of a firm to produce a given level of output with a given quantity of inputs
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What is the Short Run?
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The period of time during which at least one of a firm’s inputs is fixed
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What is the Long Run?
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The period of time when all inputs are variable, a firm can also adopt new technology and increase or decrease the size of its physical plant
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What is total cost?
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The cost of all the inputs a firm uses in production
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What is Variable Cost?
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Costs that change as output changes
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What are fixed costs?
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Costs that remain constant as output changes
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What is opportunity cost?
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The highest valued alternative that must be given up to engage in an activity
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What is an explicit cost?
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A cost that involves spending money
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What is an implicit cost?
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A non-monetary opportunity cost
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What is a production function?
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The relationship between the inputs employed by a firm and the maximum output it can produce with these inputs
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What is the Average Total Cost?
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Total Cost divided by the quantity of output produced
Generally U shaped on a graph |
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What is the marginal product of labor?
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The additional output a firm produces as a result of hiring one more worker
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What does an increase in the marginal product of labor result from?
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Increase in the Marginal Product of Labor results from the division of labor and specialization
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What is the law of diminishing returns?
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The principle that, at some point, adding more of a variable input, such as labor, to the same amount of fixed input, such as capital, will cause the marginal product of the variable input to decline
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What is the average product of labor?
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The total output produced by a firm divided by the quantity of workers
The average product of labor is the average of the marginal products of labor |
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What is Marginal Cost and what is its formula?
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The change in a firm’s total cost from producing one more unit of a good or service
Marginal Cost = ∆TC/∆Q |
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Why are the Marginal and Average cost curves U-Shaped
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When the marginal product of labor is rising, the marginal cost of output is falling, when the marginal product of labor is falling, the marginal cost of production is rising
We can conclude that the marginal cost of production falls and then rises, forming a U shape, because the marginal product of labor rises and then falls |
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What is the formula for average total cost?
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Average total cost = (TC/Q)
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What is the formula for average fixed cost?
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Average Fixed Cost = (FC/Q)
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What is the formula for Average variable cost?
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Average Variable Cost = (VC/Q)
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True/False: There are fixed costs in the long run
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false
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What is the long run average cost curve
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A curve that shows the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed
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What are economies of scale?
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The situation when a firm’s long run average costs fall as it increases the quantity of output it produces
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What are three reasons why firms may experience economies of scale?
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A Firm’s technology may make it possible to increase production with a smaller proportional increase in at least one input
Both workers and managers can become more specialized, enabling them to become more productive Large firms may be able to purchase inputs at a lower price than small businesses |
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What are constant returns to scale?
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The situation in which a firm’s long-run average costs remain unchanged as it increases output
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What is minimum efficient scale?
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The level of output at which all economies of scale are exhausted
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What are diseconomies of scale?
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The situation in which a firm’s long run average costs rise as the firm increases output
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