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ECO110 > Exam 2 > Flashcards

Exam 2 Flashcards

(78 cards)

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1
Q

Price elasticity of Demand

A

the percentage change in quantity demanded divided by the percentage change in price Ed= %change in Q demanded/ %change in P

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2
Q

Price elasticity of Supply

A

the percentage change in quantity supplied divided by the percentage change in price Es= %change in Q supplied/ %change in P

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3
Q

As elasticity increases, ___

A

quantity responds more to price changes

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4
Q

elastic

A

the percentage change in quantity is greater than the percentage change in price E > 1

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5
Q

inelastic

A

the percentage change in quantity is less than the percentage change in price E -suppliers have an incentive to restrict supply when demand is inelastic because, by doing so, they will increase their revenue

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6
Q

perfectly inelastic

A

quantity does not respond at all to changes in price E = 0

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7
Q

perfectly elastic

A

reflecting the fact that quantity responds enormously to changes in price E = infinity

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8
Q

If Ed

A

inelastic a. P increases, Q decreases (Q falls only a little) = TR increases b. P decreases, Q increases (Q increases only a little) = TR decreases

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9
Q

If Ed > 1

A

elastic a. P increases, Q decreases (Q has a large decline) = TR decreases b. P decreases, Q increases (Q has a large increase) = TR increases

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10
Q

If Ed = 1

A

% change in P increases, % change in Q decreases TR stays the same

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11
Q

The number of substitutes a good has is affected by several factors (4)

A
  1. the time period being considered 2. the degree to which a good is a luxury 3. the market definition 4. the importance of the good in one’s budget
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12
Q

price discrimination

A

is the practice of charging a different price for the same good or service

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13
Q

normal goods

A

goods whose consumption increases with an increase in income

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14
Q

luxuries

A

goods that have an income elasticity greater than 1

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15
Q

necessity

A

good that has an income elasticity between 0-1

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16
Q

inferior goods

A

goods whose consumption decreases when income increases

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17
Q

substitutes

A

goods that can be used in place of another one

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18
Q

complement

A

goods that are used in conjunction with other goods (the cross-price elasticity of compliments is negative)

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19
Q

consumer surplus

A

the value the consumer gets from buying a product less its price

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20
Q

producer surplus

A

the price the producer sells a product for less the cost of producing it

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21
Q

deadweight loss

A

the loss of consumer and producer surplus from a tax

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22
Q

welfare loose triangle

A

a geometric representation of the welfare cost in terms of misallocated resources caused by a deviation from a supply/demand equilibrium

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23
Q

excise tax

A

tax levied on a specific good

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24
Q

General rule for the burden of tax

A

-the more inelastic one’s relative supply and demand, the larger the burden of the tax one will bear. -if demand is more inelastic than supply, consumers will pay a higher % of the tax -if supply is more inelastic than demand, suppliers will pay a higher % of the tax

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25
price ceiling
a government-set price below the market equilibrium price
26
price floors
government-set prices above the equilibrium price
27
rent-seeking activities
activities designed to transfer surplus from one group to another
28
public choice economists
economists who integrate an economic analysis of politics with their analysis of the economy
29
balance of trade
the difference between the value of exports and the value of imports is zero
30
inherent comparative advantage
comparative advantages that are based on factors that are relatively unchangeable
31
transferable comparative advantages
comparative advantages based on factors that can change relatively easily
32
trade deficit
imports \> exports
33
trade surpluses
exports \> imports
34
exchange rates
the rate at which one country's currency can be traded for another country's currency
35
tariff (custom duties)
a tax that governments place on internationally traded goods
36
general agreement on tariffs and trade
a regular international conference to reduce trade barriers
37
world trade organization
an organization whose functions are generally the same as GATTs were - to promote free and fair trade among countries
38
quota
quantity limit placed on imports
39
embargo
total restrictions on the import or export of a good
40
regulatory trade restrictions
government imposed procedural rules that limit imports
41
trade adjustment assistance programs
programs designed to compensate losers for reductions in trade restrictions
42
strategic bargaining
demanding a larger share of the gains from trade than you can reasonably expect
43
strategic trade policies
threatening implement tariffs to bring about a reduction in tariffs or some other concession from the other country
44
economies of scale
the situation in which costs per unit of output fall as output increases
45
reasons for restricting trade
1. unequal internal distribution of the gains of trade 2. haggling by companies over gains of trade 3. haggling by countries over restrictions 4. specialized production (economies of scale) 5. macroeconomics aspects of trade 6. national security 7. international politics 8. increased revenue brought in by tarriffs
46
opposing reasons for restricting trade
1. free trade increases output 2. international trade provides competition for domestic companies 3. restrictions based on national security are often abused or evaded 4. trade restrictions are addictive
47
free trade associations
groups of countries that have reduced or eliminated trade barriers among themselves
48
most-favored nation
country that will be charged as low a tariff on its exports as any other country
49
utility
the pleasure or satisfaction people get from doing or conmsuming something
50
total utility
total satisfaction one gets from consuming a product
51
marginal utility
the satisfaction one gets from consuming one additional unit of a product above and beyond what one has consumed up to that point
52
principle of diminishing marginal utility
as you consume more of a good, after some point, the marginal utility received from each additional unit of a good decreases with each additional unit consumed, other things equal
53
principle of rational choice
spend your money on those goods that give you the most marginal utility
54
utility-maximizing rule
when the ratios of the marginal utility to price of the two goods are equal
55
income effect
the reduction in quantity demanded because we're poorer
56
substitution effect
the reduction in quantity demanded because relative price has risen
57
production
transformation of factors into goods and services
58
economic institution that transforms factors of production into goods and services
firm
59
profit
total revenue - total cost
60
total costs
explicit + implicit costs
61
total revenue
the amount a firm receives for selling its product or service plus any increase in the value of the assets owned by the firm
62
long-run decision
a firm chooses among all possible production techniques (all inputs are variable)
63
short-run decision
firm is constrained in regard to what production decisions it can make (some inputs are fixed)
64
marginal product
additional output that will be forthcoming from an additional worker
65
production function
the relationship between the inputs and outputs
66
law of diminishing marginal productivity
as more and more of a variable input is added to an existing fixed input, eventually the additional output one gets from that additional input is going to fall
67
fixed costs
costs that are spent and cannot be changed in the period of time under consideration
68
variable costs
costs that change as output changes
69
total cost
TC = FC + VC
70
marginal costs
the increase or decrease in total costs from increasing or decreasing the level of output by one unit
71
technical efficiency
as few inputs as possible are used to produce a given output
72
economically efficient
the method that produces a given level of output at the lowest possible cost
73
economies of scale
when long-run average total costs decrease as output increases
74
indivisible setup cost
the cost of an individual input for which a certain minimum amount of production must be undertaken before the input becomes economically feasible to use
75
minimum efficient level of production
the amount of production that spreads setup costs out sufficiently for a firm to undertake production profitably
76
monitoring costs
the costs incurred by the organizer of production in seeing to it that the employees do what they're supposed to do
77
constant returns to scale
where long-run average costs do not change with an increase in output
78
economies of scope
when the costs of producing products are interdependent so that it's less costly for a firm to produce one good when it's already producing another

ECO110 (4 decks)

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