ALL CHAPTERS Flashcards
What is a positive statement?
A testable hypothesis of cause and effect.
What is a normative statement?
A statement which is based on opinion, not testable.
- “you should go to college”
The market supply curve of a good is found by?
Horizontally summing all the individual supply curves.
What is the demand curve said to be when it’s elasticity e = -1.
Unitary elastic
What is the demand curve said to be when 0>e>-1.
Demand curve is said to be inelastic.
What is the demand curve said to be when it’s elasticity e < -1
The demand curve is said to be elastic.
How do you calculate revenues?
R=p*Q
If cross price elasticity of two goods is negatives that means?
That the goods are complements.
If the cross price elasticity of two goods is positive that means that?
That the goods are substitutes.
Are the elasticity of supply equation and the elasticity of demand equation the same?
Same equation, however when working demand, Q stands for Quantity demanded. When working on supply, Q stands for quantity supplied.
And the elasticity for demand is negative as its downward sloping.
Are the ranges of elasticity/inelastic the same?
Yes however demand ranges are negative, supply are positive (due to the shape of the curves). i.e for demand unitary elasticity is e=-1, however for supply it is n=1.
What is the equation for the incidence of a tax that falls on consumers?
change.in (p) / change.in t (f)
This is also equal to in terms elasticities n / ( n - e )
What is the equation form of the “marginal rate of substitution”?
MRS = change.in A / change.in B
Where A is on the vertical axis and B is on the horizontal axis.
What shape is a indifference curve? Convex or concave?
Go against your scientific intuition, it is Convex Marcelo…
Define perfect substitutes.
Two goods where a consumer is completely indifferent as to which to consume.
Define perfect complements.
A right angle curve, good which a consumer is interested in consuming only fixed proportions. One left shoe and one right shoe.
Define completeness.
Consumers can rank the two or more goods, therefore they must be able to decide.
Define transitivity.
If completeness and transitivity hold the preference relation is said to be rational. It means that if a consumer says a>b and b>c, it must mean that a>c.
Define more is better.
More of a good is better than less of a good, the consumer will always pick a bundle which gives them more as it gives them more utility.
What is the endowment effect?
The endowment effect states that people place a higher value on a good if they own it than they do if they are considering buying it.
Bounded rationality
Is when people have a limited capacity to anticipate, solve complex problems and or understand complex phenomena.
Along the linear demand curve, the lower the price, is it more price elastic or less price elastic?
The less price elastic demand is.
P | \ | \ e = - 3 | \ | --\ e = - 1 | |\ | | \ e = - 0.3 | | \ \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Q
Define a Giffen good.
A commodity for which a decrease in its price causes the quantity demanded to fall.
Define a normal good.
A commodity of which as much or more is demanded as income rises.
Define a inferior good.
A commodity of which less is demanded as income rises.
Define what an Engel curve is.
The relationship between the quantity demanded of a single good and income, holding prices constant.
Define compensating variation (CV)
The amount of money one would have to give a consumer to offset completely the harm from a price increase.
Define equivalent variation (EV).
The amount of money one would have to take from a consumer to harm the consumer by as much as the price increase.
Define efficient production.
The current level of output cannot be produced with fewer inputs, given existing knowledge about the organization of production.
Define a production function.
The relationship between the quantities of inputs used and the maximum quantity of output that can be produced, given current knowledge about technology and organization.
Define the marginal product of labor (MPL) and give the equation for it.
The change in total output, chg.q, resulting from using an extra unit of labor, chg.L, holding other factors constant:
MPL = chg.q / chg.L
MLP = Change in quantity / change in labor.
Define and provide the equation for average product of labor (APL).
The ratio of output, q, to the number of workers, L, used to produce that output:
APL = q / L
Define isoquant.
A curve that shows the efficient combinations of labor and capital that can produce a single (iso) level of output (quantity).
Define and provide the equation of marginal rate of technical substitution (MRTS).
The number of extra units of one input needed to replace one unit of another input that enables a firm to keep the amount of output it produces constant.
MRTS = dL / dK = MPL / MPK
Define economies of scope.
Situation in which it is less expensive to produce goods jointly than separately.
Define the production possibility frontier.
The maximum amount of outputs that can be produced from a fixed amount of input.
What three trade-offs does society face?
- which goods and services to produce
- how to produce
- who gets the goods and services
Define a model.
A description of the relationship between two or more economic variables
Why do economists use models?
To predict how a change in one variable will affect another.
Define the law of demand.
Consumers demand more of a goos the lower its price, holding constant tastes, the prices of other goods, and other factors that influence consumption.
Define what a quota is.
The limit that a government sets on the quality of a foreign-produced good that may be imported
Define elasticity
The percentage change in a variable in response to a given percentage change in another variable
What is the equation for the elasticity of demand?
Normal form
Simplified form
e = ch.Q/ch.P * P/Q
e = -b * P/Q
what does a elasticity of demand equal to 0 mean?
e = 0
Perfectly inelastic demand
what does a elasticity of demand equal to 0 mean?
e = - infinity
Perfectly elastic demand
Define income elasticity of demand.
The percentage change in the quantity demanded in response to a given percentage change in income
What is the equation of income elasticity of demand?
Epsilon = ch.Q / ch.Y * Y/Q
Where Y = Income
What is income elasticity of demand, Xi, when income increases and quantity demanded remains the same?
Xi = 0
What is income elasticity of demand, Xi, when income increases and quantity demanded increases?
Xi = (+)
What is income elasticity of demand, Xi, when income increases and quantity demanded decreases?
Xi = (-)
Define cross-price elasticity of demand.
The percentage change in quantity demanded in response to a given percentage change in the price of another good.
What is the formula for cross-price elasticity of demand?
%Change = ch.Q / Po * Po / Q
What does it mean if the cross-price elasticity is negative?
The two goods are complements.
Bread and butter, bread’s price goes up and and the demand for butter is negatively affected.
What does it mean if the cross-price elasticity is positive?
The two goods are substitutes.
If the price of white bread goes up, you buy more brown bread. The affect of white breads price positively increases brown breads demand.
What is the equation for the price elasticity of supply?
n (eta) = ch.Q / ch.P * P/Q
What does it mean if price elasticity of supply is: n > 0 ?
Supply elasticity is positive.
What does it mean if price elasticity of supply is: n < 0 ?
Supply elasticity is negative.
What does it mean if price elasticity of supply is: n = 0 ?
Supply elasticity is perfectly inelastic
What does it mean if price elasticity of supply is: 0 < n < 1 ?
Supply elasticity is inelastic
What does it mean if price elasticity of supply is: n = 1 ?
Supply elasticity is unitary elastic.
What does it mean if price elasticity of supply is: n > 1 ?
Supply elasticity is elastic.
What does it mean if price elasticity of supply is: n = infinity ?
Supply is perfectly elastic