Micro Theme 1 Flashcards
(24 cards)
True or False: Scarcity only applies to developing countries.
False. Scarcity is a fundamental concept in economics that applies to all societies, regardless of their level of development.
What is the basic economic problem?
The basic economic problem is how to allocate scarce resources among competing uses efficiently.
What is the definition of opportunity cost?
Opportunity cost is the next best alternative forgone when an economic decision is made.
Which concept refers to the maximum amount that a producer is willing to pay for a good or service?
Consumer surplus.
What is the formula for calculating consumer surplus?
Consumer Surplus = Total Value - Total Expenditure.
What is the definition of price elasticity of demand?
Price elasticity of demand measures the responsiveness of quantity demanded to a change in price.
True or False: Price elasticity of demand is always negative.
True. Price elasticity of demand is always negative due to the law of demand.
What does a price elasticity of demand of -2 indicate?
A price elasticity of demand of -2 indicates that a 1% increase in price leads to a 2% decrease in quantity demanded.
What is the formula for calculating price elasticity of demand?
Price Elasticity of Demand = (% Change in Quantity Demanded) / (% Change in Price).
What is the main determinant of price elasticity of demand?
The availability of substitutes.
What does a perfectly inelastic demand curve look like?
A perfectly inelastic demand curve is vertical, indicating that quantity demanded does not change with a change in price.
What is the formula for calculating total revenue?
Total Revenue = Price x Quantity.
How does price elasticity of demand affect total revenue for elastic and inelastic goods?
For elastic goods, an increase in price leads to a decrease in total revenue, while for inelastic goods, an increase in price leads to an increase in total revenue.
What is the formula for calculating income elasticity of demand?
Income Elasticity of Demand = (% Change in Quantity Demanded) / (% Change in Income).
What does a positive income elasticity of demand indicate?
A positive income elasticity of demand indicates that as income increases, quantity demanded also increases.
What does a negative income elasticity of demand indicate?
A negative income elasticity of demand indicates that as income increases, quantity demanded decreases.
What is the formula for calculating cross-price elasticity of demand?
Cross-Price Elasticity of Demand = (% Change in Quantity Demanded of Good A) / (% Change in Price of Good B).
What does a positive cross-price elasticity of demand indicate?
A positive cross-price elasticity of demand indicates that goods are substitutes.
What does a negative cross-price elasticity of demand indicate?
A negative cross-price elasticity of demand indicates that goods are complements.
What is the formula for calculating price elasticity of supply?
Price Elasticity of Supply = (% Change in Quantity Supplied) / (% Change in Price).
What does a price elasticity of supply greater than 1 indicate?
A price elasticity of supply greater than 1 indicates that supply is elastic.
What does a price elasticity of supply less than 1 indicate?
A price elasticity of supply less than 1 indicates that supply is inelastic.
What is the formula for calculating producer surplus?
Producer Surplus = Total Revenue - Total Variable Costs.
What is the main determinant of price elasticity of supply?
The level of spare capacity in production.
