Flashcards in CH6 Pricing, Costs, & Profits Deck (22)
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1
marginal value & what its used for
value that consumers place on items/products
to determine how much to consume
2
demand curve
tells you how much consumers will purchase at any given price
3
first law of demand
consumer purchases more as price falls
4
What happens when the marginal value of consuming a product increases?
the value of each item reduces the more you consume
5
consumer surplus
difference between total value & amount paid
6
As price declines, what happens to consumer surplus?
the difference between total value & amount paid increases
7
aggregate demand curve
added up individual demand curves
the relationship between price and the # of purchases made
8
As price falls...
quantity increases
9
If MR > MC, then you should
sell more & reduce the price
10
If MC > MR, then you should
sell less & increase price
11
What does marginal analysis tell us?
tells us where to price or how many units to sell
12
How do we estimate MR
measure quantity responses to past price changes
how much consumers would buy in response to price changes
13
Price Sensitivity equation
e = %change quantity demanded / %change Price
14
Price Sensitivity
how sensitive demand is to a change in price
15
When is a demand curve elastic?
when quantity changes more than price
16
When is a demand curve inelastic?
when quantity changes less than price
17
If demand is elastic then (e) must be
more than 1
18
if demand is inelastic then (e) must be
less than 1
19
Why is price elasticity always negative
because quantity and price move in opposite directions
20
What is the relationship between price and revenue
when price falls, revenue increases
21
If items are elastic what happens to revenue?
price increase - revenue decrease
price decreases - revenue increases
22
