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27 Cards in this Set
- Front
- Back
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Factors shifting Demand curve |
1 - Change in prices of substitutes/complements 2 - Change in income 3 - Change in taste 4 - Change in # of consumers 5 - Change in expectations |
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Factors shifting Supply curve |
1 - Change in prices of substitutes/complements 2 - change in input prices 3 - change in technology 4 - change in expectations 5 - change in # of producers |
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Price Elasticity of Demand |
e = % Change in Quantity Demanded --------------------------------------------- % Change in Price e = -(deltaQ) P ------------ x --- deltaP Q |
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Midpoint Method |
Q2 - Q1 / (Q1+Q2/2) ----------------------------- = elasticity P2 - P1 / (P1+P2 / 2) |
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Elasticity Values |
e > 1 --> elastic e = 1 --> unit-elastic e < 1 --> inelastic |
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Factors Affecting Elasticity |
Substitutes: Few - e low Luxury: luxury - e high necessity - e low Income Proportion: high proportion - e high low proportion - e low e tends to increase as consumers have more time to adjust to a price change |
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Elasticity & Total Revenue |
TR = P x Q e = 1 --> P increases, TR unchanged e > 1 --> P increases, TR decreases e < 1 --> P increases, TR increases |
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Cross-Price Elasticity of Demand |
e = % change in demand for A --------------------------------------- % change in price of B > 0 --> substitutes < 0 --> complements |
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Income Elasticity of Demand |
e = % change in Demand -------------------------------- % change in Income > 0 --> normal < 0 --> inferior > 1 --> income-elastic 0 < e < 1 --> income-inelastic |
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Price Elasticity of Supply |
e = % Change in Quantity Supplied --------------------------------------------- % Change in Price > 1 --> elastic = 1 --> unit-elastic < 1 --> inelastic = 0 --> perfectly inelastic = infinity --> perfectly elastic |
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Price Elasticity and Excise Tax |
if eS > eD --> incidence of tax falls primarily on consumers if eD > eS --> incidence of tax falls primarily on producers if Demand and Supply are relatively inelastic, there is less DWL |
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Progressive Tax |
tax that rises more in proportion to income |
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Regressive Tax |
tax that rises less in proportion to income |
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Accounting Profit |
= Revenue - explicit cost |
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Economic Profit |
= Revenue - explicit cost - implicit cost |
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Capital |
Sum of all assets (cash, stocks, bonds, house, tools/equipment, inventory, etc) |
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Implicit cost of capital |
income the owner of the capital could have earned if the capital had been employed in its next best alternative use |
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Profit maximizing (optimal) quantity |
largest quantity at which MB >= MC |
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Sunk Cost |
Cost that has already been incurred and is non-recoverable Should be ignored when making decisions about future actions |
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Optimal Consumption Choice |
MUx = MUy = MUx = Px ------- -------- ------- ---- Px Py MUy Py |
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Giffen Good |
Good with upward-sloping D curve |
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Marginal Rate of Substitution (MRS) |
MRS = - MUx ---------- MUy |
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Variable Costs |
Costs that vary depending on quantity of output produced |
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Factors that make tacit collusion difficult |
1 - Large number of producers 2 - complex products/pricing 3 - differences in interests 4 - large bargaining power of buyers |
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Why do monopolistically competitive firms have excess capacity in the long run? |
They do not minimize ATC |
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Pigouvian Tax |
Tax designed to reduce external costs |
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TR increases if [price v elasticity] |
Price increases & demand = inelastic Price decreases & demand = elastic |
