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28 Cards in this Set

  • Front
  • Back
PPF
Production Possibilities Frontier: a curve that graphs all the possible combinations of two given goods that an economy can produce
Law of Increasing Opportunity Costs
As production of a good increases, the opportunity costs of producing an additional unity rises
Economic Growth
An outward shift of the PPF
Tarrif
a tax on an import good
Import Quota
A limit on the quantity of a good that can be produced abroad and sold domestically
Terms of Trade
Quantity of imports that can be sold for a fixed quantity of exports
Elasticity
A measure of relative responsiveness of one variable in a change in another
Price Elasticity of Demand
The ratio in the percent change in the quantity demanded to the percent change in price
Elastic
A product that responds to price change, the more elastic the more responsive the product is (exp. fast food, cereal, ect.)
Perfect Elastic
A tiny change in Price causes an infinite change in Quantity Demanded (exp. agricultural markets)
Unity Elasticity
Change in Price is equal to the change in Quantity Demanded (if 10% change in Qd, 10% change in P)
Inelastic
Price change really doesn't have an effect on Quantity demanded (exp. gas, cigarettes)
Perfectly Inelastic
A huge change in price causes no change in Quantity demanded (exp. prescription and black market drugs)
Constant v Increasing Opportunity Cost
A constant opportunity cost maintains a steady opportunity cost as production increases, increasing opportunity costs rises as production increases.
Causes of Economic Growth
1. Increase in available resources
2. A technological improvement
3. A change in regulation
Absolute/comparative Advantage
If you have the absolute advantage you have the ability to produce more in a given time frame then your competitor.
If you have the comparative advantage you can produce more at a lower marginal opportunity cost.
Tarrif v Quota
Both tarrifs and quotas are meant to control the amount of imports. Tarrifs do so by price manipulation, quotas limit the quantity of a product allowed to be imported.
Elastic v Inelastic
Quantity demanded of elastic products responds to price changes, Qd of inelastic products does not change with price.
Elasticity and Total Revenue
If a product is elastic, price and total revenue move opposite.
If a product is inelastic, price and total revenue move together
If a product has unity elasticity, price has no effect on total revenue.
Determinants of Price Elasticity of Demand
1. Number of substitutes (more substitutes=more elastic)
2. Time to which to make the purchase (more time to buy= more elastic)
3. Proportion of Income (More money spent = more elastic)
4. Luxuries v Necessities (necessities are inelastic, luxuries are elastic)
Elasticity on a Curve
Midpoint is where Elasticity = 1, above midpoint is elastic, below midpoint is inelastic
Income Elasticity of Demand
=%^Qd / %^Income
Normal goods have a positive elasticity
Inferior goods have a negative elasticity
Cross Elasticity of Demand
=%^QdX /%^QdY
Substitutes have a positive elasticity
Complements have a negative elasticity
Opportunity Cost Formula
Opportunity cost of the Nth Unity of X = Quantity of Y at (N-1) - Quantity of Y at N
Price Elasticity of Demand Formula
Ed= %^Qd / %^P
--or--
Ed= (^Qd/AverageQd) / (^P/AverageP)
%^Qd Formula
^Qd / original Qd
%^P Formula
^P / original P
Total Revenue
TR= PxQ