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47 Cards in this Set

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  • Back
Price System
Those willing and able to pay the price get what is produced

Price is directly related to scarcity
Queues
When price does not reflect scarcity and is relative to the desire to own something
3 other methods societies use to decide who get what
Lotteries, Government rationing, Force
Benefit of the Price system
Efficiency in the sense that surpluses and shortaged as we defined them are avoided
Problem with the Price system
Allocation or distribution of good that society does not like may occur. We may get undesirable distribution of "goods" and "bads"
An example of a bad is
Pollution
We can use government sectors, non-profit sectors, and a legal system to
allocate goods and services in a preferred way
Price ceilings are irrelevant if
ceiling price is greater than equilibrium price
Price floor must be
above the equilibrium price to be effective
Quota
A maximum quantity allowed for sale
With quotas the supply curve becomes
Kinked
Utility
The enjoyment or satisfaction that a good or service gives (benefit or well-being)
Util
A unit used to measure utility- arbitrary
Jeremy Bentham
developed a philosphy known as utilitarianism which said that society should act to provide the greatest good for the greatest number. They hoped to invent a utilometer to measure utility
Marginal utility (MV)
Change in total utility due to a one unit change in quantity of a good or a service consumed
Law of Diminishing MU
The principle that MU decrease as quantity consumed increases
Approximation of market CS
CS= .5(Pmax-P*)(Q*)
The Dez
Your favorite little brown dog
Producers clearly _______ because of price ceilings
lose
Some Consumers _________ because of price ceilings
gain
If we have perfectly inelastic demand
there is no change in sum of CS+ PS
Consumers Maximize utility when
(MUA/PA) = (MUB/PB)
Approximatly equal
Elasticity
is a measure of reponsiveness. It measures how sensitive an economic variable is to a change in anouther economic variable
Price elasticity of Demand
Shows how sensitive quanity is to a change in price

Shows the approximate percentage change in quantity demanded per one per cent change in price
If the absolute value of the price elasticity of demand is greater than one
then we say the demand for this good is elastic
If the absolute value of the price elasticity of demand is equal to one
then we day that the demand for the good is unit elastic
Consumers Maximize utility when
(MUA/PA) = (MUB/PB)
Approximatly equal
Elasticity
is a measure of reponsiveness. It measures how sensitive an economic variable is to a change in anouther economic variable
Price elasticity of Demand
Shows how sensitive quanity is to a change in price

Shows the approximate percentage change in quantity demanded per one per cent change in price
If the absolute value of the price elasticity of demand is greater than one
then we say the demand for this good is elastic
If the absolute value of the price elasticity of demand is equal to one
then we day that the demand for the good is unit elastic
If the absolute value of the price elasticity of demand is less than one
then we day the demand for the good is inelastic
If the absolute value of the price elasticity of demand is equal to zero
then we say that the demand for the good is perfectly inelastic
If the absolute value of the price elasticity of demand is equal to infinity
then we say that the demand for the good is perfectly elastic
Per cent of budeget
Less expensive items tend to have more inelastic demand
Number of sustitutes
items with more substitutes ten to be more elastic
The more time consumers have to adjust
The more elasticity
If income elasiticity of demand is greater than zero, the good is
a normal good
If income elasticity of demand is less than zero the good is
an inferior good
If the cross price elasticity of demand is greater than zero the two goods are
substitutes
If the cross price elasticity ofd emand is less than zero
the two goods are complements
If the price elastisity of supply is greater than one the good
has price elastic supply
if the price elasticity of supply is infinity, the good has
perfectly elastic supply
if the price elasticity of supply of zero the good has
perfectly inelastic supply
The results of studies help us understand why Congress has supported increases in the minimum wage
1. Large help for workers whose pay goes up; relatively few lose-jobs
2. Keep up with inflation so that minnimum wage workers don't get a reduction in purchaseing power of their pay.
BE
FAITHFUL
YOU ARE
BEAUTIFUL