Unit 2

Question 1

Substitution Effect

Answer 1

When something costs more, you look for something less expensive

Question 2

Calculating price elasticity from the demand curve

Answer 2

Midpoint formula:
Q2-Q1/(Q2+Q1)/2/
P2-P1/(P1+P2)/2

Question 3

Cross price elasticity (negatives)

Answer 3

how a change in P of one good impacts QD of another good
compliments: negatives
substitutes: positives

Question 4

Income elasticity (positive)

Answer 4

how QD is impacted by a change in income
negative: inferior good
positive: normal good

Question 5

table, change income elasticity of demand for one product

Answer 5

use midpoint formula

Question 6

Demand curve: consumer surplus

Answer 6

area below the curve: 1/2(BxH)

Question 7

Willingness to sell

Answer 7

Who has the most individual producer surplus (who’s cost is the lowest)

Question 8

Tax incidence

Answer 8

who takes more of the burden of the tax-based on elasticity

Question 9

Marginal Utility

Answer 9

Satisfaction from consuming 1 more

Question 10

Diminishing Marginal Utility

Answer 10

Satisfaction increases, marginal utility decreases