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Flashcards in Unit 2 Deck (30):
1

law of demand

price up, demand down; 4 principles
1. common sense
2. Law of diminishing marginal utility
3. Income effect
4. Substitution

2

Law of diminishing marginal utility

less satisfaction the more you consume

3

Income effect

price lowers, feel like you have more $

4

Demand Determinants

SPITE:
Subs + Comps
People (# of buyers)
Income
Taste
Expectations
*change in prince moves along curve

5

law of supply

as price increases, supply also increase

6

Supply Determinants

POINT^2:
Producer Expectations
Other goods
Inputs + resources
Number of sellers
Taxes + Technology
*change in quantity moves along curve

7

productively efficient

using max resources

8

allocative efficient

society gets desired goods

9

elasticity of demand

E = %ΔXd / %ΔXP

10

% =

% = Δ/original

11

Midpt Formula

Ed = (ΔQ/(sumQ/2)) / (ΔP/(sumP/2))

12

elasticity if E>1

elastic

13

elasticity if E<1

inelastic

14

elasticity if E=1

unit elastic

15

extreme elasticity

E=infinity or E=0

16

Total Receipts/Revenue Test

TR = P x Q

17

What is the elasticity at top, middle, bottom of graph?

Top - elastic
middle - unit elastic
bottom - inelastic

18

Supply elasticity

Es = %ΔXq / %ΔXp

19

Supply elasticity sum

Esum = (ΔQ/ (sumq/2)) / (ΔP/ (sump/2)

20

supply elasticity if..

Es >1 - elastic
Es<1 - inelastic
Es=1 -unit elastic

21

Cross elasticity

Exy = %ΔQx / %ΔPy

if:
+ sub
- comp
0 unrelated

22

income elasticity

Ei = %ΔD / %Δincome

if:
+ normal
- inferior

23

consumer surplus

dif in max willing to be payed vs actually payed

24

producer surplus

what they're willing to charge vs what they do

25

demand failure

curves don't relfect demand

26

supply failure

producers don't pay full cost of production

27

productive + allocatively effcient

PS=CS

28

deadweight loss

under or overproduction/ shortage vs surplus

29

short run

economy behaves differently depending on the length of time it has to react to certain stimuli.

30

long run

ll factors of production and costs are variable