Week 3 Flashcards
(13 cards)
What is cross price elasticity of demand (XED)
- percent change in qd of a good in response to a 1% change in the price of another good
- positive is substitutes
- negative if complements
what is income elasticity of demand (YED)
- percentage change in qd associated with a 1% change in consumer income
- how responsive demand is to income changes
- positive for normal goods
- greater than 1, luxury goods
- negative for inferior goods
describe price elasticity of supply
- εs = % change in q supplied/ % change in price
what are the determinants of supply elasticity
- flexibility of inputs
- mobility of inputs
- ability to produce with substitute inputs
- time
describe consumers surplus
difference between a buyers reservation price and price actually paid
describe total economic surplus
consumer surplus + producer surplus
describe producer surplus
difference between seller’s reservation price and price received
what is pareto efficient
no one can be made better off without making someone worse off
- at the competitive equilibrium
what are the assumptions about pareto efficient
- all benefits from consumption are captured by the demand curve
- all costs from production captured by supply curve
- low transaction cost
- information
- perfectly competitive market
where is a price ceiling placed
below the market equilibrium
what is a deadweight loss
reduction in total economic surplus
where is a price floor placed
above the market equilibrium
draw a demand supply diagram showing taxation, include consumer surplus, producer surplus, tax revenue and the deadweight loss
