L4 Flashcards
How is demand for normal goods affected by changes in income
It rises and falls with income
How is demand for inferior goods affected by changes in income
Demand decreases when income rises
What is the income effect in micro economics
When prices rise real income decreases
What is the substitution effect in microeconomics
That when prices for one good increases demand for it is lowered and demand for its substitutes increase
Why did demand decrease for rice when it was subsidized
Because rise was seen as an inferior good so by the income effect on an inferior good the new greater income was used to buy other goods
What influences the strength of the income effect in a particular ware
The share of the houshold budget that is dedicated to the good. The greater the amount the greater change in purchasing power upon a price change
How can we see the strength of the substitution effect using the indifference curve
By looking at how convex the curve is at the origin. Sharper angle means greater substitution effect
How do you calculate market demand for multiple consumers
Through summing it at the price points where both are engaged keeping in mind at what intervals different actors are involved
Where do the budget line cross the x and y axis
Where you spend the entire budget on either good x or good y
When does one option dominate another option
When you are better of always choosing one alternative
How do you get the marginal cost function from a total cost function
As its a derivative you simply have to bring down the exponents by ine and than multiply that part by the exponant and remove all constants
Q^3 + 2 => 3Q^2
How do you calculate where average variable cost is the smallest when the production function has an exponent of three
You check where the derivative is zero. You can also check where the average variable cost curve crosses the marginal cost curve
How do you calculate long run equilibrium price
It is where average total cost equals marginal cost and there is no profit
What’s the shutdown condition of a firm
When average variable costs are greater than the price. If so we only dig our grave but if it is not it can pay of the fixed costs
Can price be lower than marginal revenue
No it does not make sense
