Flashcards in Deck 13 Deck (20):
The kinked demand curve is associated with what kind of market?
In markets controlled by monopolists, price is set where:
Marginal revenue equals marginal cost
What happens to equilibrium price and quantity when supply and demand both increase?
Equilibrium quantity increases but equilibrium price is indeterminate
Price elasticity of demand =
Percent change in quantity demanded / percent change in price
The elasticity of supply =
Percent change in quantity supplied / change in price
Change in quantity demanded/supplied is caused by:
A change in price; movement along the demand/supply curve
Change in demand/supply is caused by:
Changes in something other than price; shift of the demand/supply curve
Fundamental Law of Supply
As price increases, quantity supplied will also increase
Fundamental Law of Demand
As price increases, quantity demanded will decrease
When does a surplus occur?
Price floor is greater than the equilibrium price; Supply is greater than demand
When does a shortage occur
Ceiling price is less than the equilibrium price; supply is lower than demand
Price elasticity of demand is less than 1; quantity demanded or supplied of a good is unaffected when the price of that good changes
Price elasticity of demand is greater than 1
When demand is price inelastic and prices increase, how does total revenue change?
When demand is price elastic and prices increase, how does total revenue change?
The change in total product resulting from a one-unit increase in the quantity of an input employed
No individual firm can influence the market price; Large number of suppliers, homogenous products, no barriers to entry
Many sellers compete to sell a differentiated product; few barriers to entry
Few sellers dominate the sales of a product and entry is difficult; firms control quantity and price