Flashcards
Econ Test
Flashcards do conjunto (49)
- 1Elasticitythe measure of the responsiveness of Q demanded and Q supplied
- 2Price elasticity of demandhow much the quantity demanded of good responds to a change in the price of that good
- 3Midpoint formula% change = (end value - start)/ average of two values
E = % change in Q / % change in P - 4Inelastic Demand% change in Q is less than % change in P (steep demand Curve)
E < 1 - 5Elastic Demand% change in Q is more than % change in P (flatter demand Curve)
E > 1 - 6Unit elastic% change in Q is equal to % change in P
E = 1 - 7Perfectly elasticE = infinity, graph is horizontal
- 8Perfectly inelasticquantity is always the same no matter the price
E = 0 - 9Determinants of price elasticity of demandsubstitutes: more = more elastic
Defined goods: higher for narrowly defined goods
Necessities vs luxuries: luxury is more elastic
Time horizon: short vs long, long term is more elastic - 10Total RevenueTR = price x quantity sold
- 11effects on TRWhen demand is elastic and price increases = revenue falls
when demand is inelastic price increase = revenue increase
When demand is unit elastic price change = revenue remains constant - 12income elasticity of demandIED = % change in quantity demanded/ % change in income
- 13Normal Goodspositive income elasticities, necessities = smaller income elasticities, luxuries = large income elasticities
- 14inferior goodsnegative income elasticities
- 15Cross price elasticity of Demandhow much the quantity demanded of one good responds to the change in the price of another good
CPED = % chanfe in quantity of good 1 / % change in price of good 2 - 16Substitutes/complements in SPEDsubstitutes: positive cross-price elasticity
Complements: negative cross-price elasticity - 17Price elasticity of supplyHow much quantity supplied of good responds to change in price
elastic supply: large change
inelastic: small change
flatter the supply curve greater the price elasticity of supply - 18Determinants for price elasticity of supplgreater price elasticity of supply the more easily sellers can change the quantity they produce
price elasticity of supply is greater in the long run than in the short run - 19Price ceilinglegal max on price at which good can be sold
- 20Price ceiling short runsupply and demand for housing are inelastic in the short run, small shortage
- 21Price ceiling long runsupply and demand are more elastic, large shortage
- 22Binding Price Ceilingset below the equilibrium price (shortage)
- 23Price Floorlegal min on price at which good can be sold
- 24Binding Price Floorset above the equilibrium price, surplus, sellers unable to sell what they want, decreases quantity sold
- 25Taxeson buyers = demand curve moves down by amount of tax
on sellers: supply shifts up by amount of tax - 26Incidencehow the burden of tax is shared among market participants
- 27Tax effectit is the same on Q and P whether it is put on buyers or sellers
Less elastic curve bares the most burden from taxes - 28Luxury taxesdemand is quite elastic and supply is relatively inelastic
- 29Payroll taxesdeducted from the amount you earned
- 30allocation of resourceshow much each good is produced, which producers produce it, and which consumers consume it
- 31Welfare economicsstudies how allocation of resources affects the economic well being
- 32consumer surpluswillingness to pay - amount paid
increase in price of good decrease CS
decrease in price of good increases CS - 33comsumer surplus equationdifference in old price and new price x quantity bought or difference in quantity/2 = CS
- 34Costvalue of everything a seller must give up to produce a good
- 35willingness to sellproduce and sell the good only is the price > cost
- 36Producer surplusprice - cost
amount seller is paid for pood minus cost to produce it
PS = (difference in price x difference in quantity)/2
lower price reduces PS
higher price raises PS - 37Efficient Allocationresources maximizes surplus
goods are consumed by buyers who value them most highly - 38Total surplusconsumer surplus = value to buyers - amount paid
producer surplus = amount recieved by sellers - cost to sellers
total surplus = value to buyers - cost to sellers
or CS + PS - 39Assumptions about the marketmarkets are perfectly competitive
outcome in markets matter only to buyers and sellers in that market - 40Market failuresmarket power: single buyer/seller, control market prices, markets are inefficient
Externalities: decisions of buyers/sellers, affect people that do not participate in market at all, cause welfare market to dependon more then just value to buyers, inefficient equilibrium - 41Applicationcost of taxation
- 42Effects of taxrevenue from tax price from tax x qunatity with tax
- 43deadweight lossfall in total surplus that results from market distortion such as tax
Tax x change in quantity / 2
changes in total surplus due to market distortion
quanitity is smallers than would be in the absence of distortion - 44Welfare losses from taxchanges in total surplus, CS decrease, PS decreases, tax revenue = T x Q
- 45Taxes distort incentivesmarkets allocate resources inefficiently
quantity under a tax is smaller than the absence of tax
tax qill decrease consumer surplus, producer surplus, and total surplus
dead weight loss is the loss in total surplus associate with tax
Tax has DQL b/c it causes consumers to buy less and producers to sell less - 46determinants of DWLprice elasticity of supply and demand
more elastic supply curve = larger DWL
more elastic demand curve = larger Dwl - 47Effects of changing taxtax increase = DWL increase, tax revenue increases initially then decrease, reduces the size of market
- 48Laffer Curveshows the relationship between the size of tax and tax revenue, comes up and then back down as tax increases
- 49Tax paidBuyers = (dif in price at equilibrium - price w/tax) x Q
Sellers = (dif in price at equilibrium - price w/tax) x Q
DWL = change in Q x Change in P / 2