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53 Cards in this Set
- Front
- Back
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Elasticity formula |
%change in qty demanded/% change in price |
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|elasticity|>1 |
elastic |
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|elasticity|<1 |
inelastic |
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|elasticity|=1 |
Unit elastic |
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Elasticity for vertical demand/supply curve |
elasticity = 0 perfectly inelastic |
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Elasticity for horizontal demand/supply curve |
elasticity = infinity, perfectly elastic |
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Midpoint formula |
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When demand is elastic, total revenue ______ when firm lowers the price |
increases |
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When demand is inelastic, total revenue will ______ when firm lowers the price |
decrease |
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Elasticity is more _____ in the long run than in the short run |
elastic |
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If good is small % of budget, then it is likely _____ |
inelastic |
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If a good is a larger % of budget, then it is likely _____ |
elastic |
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cross price elasticity of demand formula |
% change in qty demanded of A/ % change in price of good B |
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Cross price elasticity: substitutes |
positive |
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Cross price elasticity: complements |
negative |
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Cross price elasticity: unrelated |
zero |
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Income elasticity formula |
%change in qty demanded/% change in income
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Income elasticity: normal goods |
positive
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Income elasticity: inferior goods |
negative
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Price elasticity of supply |
% change in qty supplied/%change in price |
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private cost |
the cost borne by the producer of a good/service |
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social cost |
the total cost of producing a good/service including both the private cost and any external cost |
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MSC = |
MPC + MEC |
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If Qm > Qe, market equilibrium _______ |
is not economically efficient |
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Qm |
market equil qty (at MPC) |
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Qe |
external equil? |
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Pigovian tax |
Government policy to acheive Qe. It is equal MEC of pollution at economically efficient quantity. Causes internalization of externality. |
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MSB = |
MPB + MEB |
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If Qm < Qe, the government will apply a _____ |
Pigovian subsidy equal to MEB |
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Positive externalities affect the ______ curve |
demand
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Negative externalities affect the ______ curve |
supply |
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social is always ______ private cost/benefit |
above |
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Coase theorem |
- No gov. intervention - If transaction costs are low private bargaining will result in an efficient solution to the problem of externalities |
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Q optimal = |
Mb = Mc
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rivalry |
when one person's consumption means no one else can consume it |
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excludability |
anyone who doesn't pay for a good cannot consume it |
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Rival and excludable |
private good |
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rival and non-excludable |
common resource
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non-rival and excludable |
quasi-public goods |
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non-rival and non-excludable |
public goods |
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Free-riding |
Benefiting from good without paying for it |
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MSB for multiple individuals |
joint demand (summation) |
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Absolute advantage |
one country can use fewer resources to produce a good compared to another country; more productive |
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comparative advantage |
one country has a lower opportunity cost than another |
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Absolute advantage could be due to |
- climate and natural resources -skilled workers -tech -economies of scale (avg cost of producing each unit declines as total output increases) |
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True or False: With trade, consumption can be outside of the PPF |
True |
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Tariff |
tax imposed by government on imports |
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When tariff is imposed on trade, consumer surplus _____ while producer surplus ______ |
decreases, increases |
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Tariff is equal to ? |
F |
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Quota |
numerical limitations on the quantity of products that can be imported |
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Producer surplus of foreign suppliers = |
C |
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World price line above equil |
Export |
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World price line below equil |
import |
