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Flashcards in Economics Deck (16):
1

What are the characteristics of a positive supply curve shift (shift right)?

"Supply increases at each price point

Government subsidies

Number of sellers increase - market can get flooded

Price expectations

Technological advances or reduction in production costs"

2

What are the characteristics of a negative supply curve shift (shift left)?

"Supply decreases at each price point

Cost of producing item increases

Prices of other products

Examples: Shortage of gold- so less gold watches are made; wars or crises in rice-producing countries means there is less rice on the market"

3

What is a Positive Demand Curve Shift (Shift Right)?

"When demand increases at each price point

Price of substitutes go up - price of beef rises- so people buy more chicken

Future price increase is expected - War in Middle East- people go out and buy gas

Market expands - i.e. people get new free health care plan- demand at clinic rises

Income (for normal goods) - when incomes increase, demand increases"

4

What is a Negative Demand Curve Shift (Shift Left)?

"Demand decreases at each price point.

Price of complement goes up - price of beef goes up- less demand for ketchup

Boycott - Company commits social blunder- consumers boycott

Income (for inferior goods) - when incomes increase, demand decreases"

5

What is the Marginal Propensity to Consume?

"How much you spend when your income increases

Calculate: Change in Spending / Change in Income

Also, MPC = 1 - MPS"

6

What is the Marginal Propensity to Save?

"How much you save when income increases

Calculate: Change in Savings / Change in Income

Also, MPS = 1 - MPC"

7

What is the Price Elasticity of Demand?

Measures how responsive the quantity demanded is to a change in price. Ed = % change in QD/ % change in price

If Ed > 1, elastic
If Ed < 1, inelastic
If Ed = 1, unitary, unit elastic

8

What is the Income Elasticity of Demand?

Measures the effect of changes in (consumer) income on changes in the quantity demanded of a product. Income Elasticity of Demand = % change in QD / % change in income

If > 0, normal good
If < 0, inferior good

9

What is the arc method?

Ed = (change in QD/ avg QD) / (change in $ / avg $)

10

What is the cross-elasticity of demand?

Tells you if the goods are substitutes or complements.

% change in QD for X / % change in price of Y

If > 0, then substitute (direct relationship)
If < 0, then complement (inverse relationship)

11

What is the price elasticity of supply?

A measure of how quantity supplied of a good/service is to a change in price/cost.

Es = % change in QS / % change in price

If Es > 1, elastic
If Es < 1, inelastic

12

What is economic rent?

The surplus of choosing the best alternative

13

What is marginal utility?

Additional joy you get from one more unit.

14

What is the law of diminishing marginal utility?

The more a consumer consumers of a particular product, the less satisfying will be the next unit of that product.

15

What are international bodies that deal with international economic issues?

WTO
G-20
EU

16

What preceded most recessions during the second half of the 20th century?

Most recessions followed efforts by the Fed to forestall current or expected increases in inflation rates through higher interest rates.