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Flashcards in Exam 2 Deck (45):
1

What does the law of demand tell us?

that consumers will respond to a price decrease by buying more of a product

2

When demand is elastic...

there is a large change in quantity demanded even when price changes by a small amount

3

When demand is inelastic...

there is a very small change in quantity even when there is a large change in price

4

Ed>1

demand is elastic

5

Ed=1

demand is unit elastic

6

Ed<1

demand is inelastic

7

Ed=0

demand is perfectly inelastic

8

Ed= (infinity sign)

demand is perfectly elastic

9

Total revenue

Price x Quantity

10

Determinants of price elasticity of demand

- substituability
- proportion of income
- luxuries vs. necessities
- time

11

price elasticity of supply

measures sellers responsiveness to price changes

12

elastic supply

producers are responsive to price changes

13

inelastic supply

producers are not as responsive to price changes

14

Es > 1

supply is elastic

15

Es = 1

supply is unit elastic

16

Es < 1

supply is inelastic

17

Es = 0

supply is perfectly inelastic

18

The immediate market period

there is not time to adjust output in response to a price change

19

the short run

there is enough time to adjust output by increasing or decreasing the variable inputs but not the fixed inputs

20

the long run

there is enough time adjust output by increasing or decreasing all inputs

21

on a graph with a perfectly inelastic supply

the increase in demand does not change the quantity demanded at all (supply stays the same)

22

on a graph with short run

a somewhat greater increase in quantity (demand shifts, supply is diagonal)

23

the long run

the supply is more elastic, with the same increase in demand

24

cross elasticity of demand

refers to the effect of a change in a products price on the quantity demanded for another product

25

if goods are subsitutes

a positive cross elasticity of demand

26

if goods are complements

they will have a negative cross elasticity of demand

27

if goods are unrelated

a cross elasticity of zero

28

income elasticity of demand

measures the responsiveness of buyers to changes in their income

29

normal goods

if elasticity is positive

30

inferior goods

if elasticity is negative

31

economic costs

the payment that must be made to obtain and retain the services of a resource

32

explicit costs

monetary outlay
payments to non-owners for resources they supply

33

implicit costs

- opportunity cost of using self-owned resources
- money payments the self-employed resources could have earned in their best alternative employment

34

Accounting profit

revenue-explicit costs

35

economic profit

accounting profit - implicit costs
revenue - economic cost
revenue - explicit cost- implicit costs

36

law of diminishing returns

- resources of equal quality
- technology is fixed
- variable resources are added to fixed resources
- at some point, mariginal product will fall

37

Fixed costs (TFC)

costs that do not vary with output

38

variable costs (TVC)

costs that do not vary with output

39

Total costs (TC)

sum of TFC and TVC

40

economies of scale

refers to the idea that for a time, larger plant sizes will lead to lower unit costs

41

diseconomies of scale

may occur if a firm becomes too large

42

Pure competition

- large number of firms
- standardized product
- no control over price
- easy entry
- no nonprice competition
- ex. agriculture

43

monopolistic competition

- many number of firms
- differentiated type of product
- narrow limit control over price
- relatively easy condition of entry
- considerable emphasis on advertising, brand names, trademarks
- retail trade, dresses, shoes

44

oligopoly

- few number of firms
- standardized or differentiated type of product
- limited by mutual inter-dependence (control over price)
- significant obstacles for entry
- (non price competition) a great deal, with product differentiation
- ex. steel, auto, farm implements

45

monopoly

- one firm
- unique no close subs for type of product
- considerable control over price
- blocked for entry
- public relations advertising
- ex. local utilities