51 Cards in this Set
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the income elasticity of demand is the percentage in the _____ divided by the percentage change in ______
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quantity demanded; income
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The cross-price elasticity of demand is computed as the % change in _________ of the 1st good divided by the % change in ______ of the 2nd good.
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quantity demanded, price.
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The total revenue is computed as the _____ of the good times the ________ _____.
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price, quantity sold.
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The price of elasticity demanded is computed as the % change in ___________ divided by the % change in ___________.
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quantity demanded, price.
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The total revenue is computed as the _____ of the good times the ________ _____.
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price, quantity sold.
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Demand would be ( more / less ) elastic in the long run rather than the short run.
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More.
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The price of elasticity demanded is computed as the % change in ___________ divided by the % change in ___________.
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quantity demanded, price.
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what are the four determinants of the price elasticity of demand
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1. availability of substitutes
2. whether the good is a necessity or a luxury
3. the share of someone's income spent on the good
4. time
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When there is perfectly inelastic demand, the slope is...
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Equal to infinity.
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When there is inelastic demand, the slope is...
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Less than 1.
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When there is perfectly elastic demand, the slope is...
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Equal to 0.
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When there is unitary elastic demand, the slope is...
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Equal to 1.
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When there is elastic demand, the slope is...
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Greater than 1.
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Supply curves always have a ( positive / negative ) slope.
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Positive.
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Demand curves always have a ( positive / negative ) slope.
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Negative.
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Positive statements are ( descriptive / prescriptive ) .
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Descriptive.
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3 Reasons Why Economists Disagree:
1. Differences in ___________ ____________.
2. Difference in _________.
3. ___________ vs. ____________.
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Scientific Judgments - Values - Perception - Reality.
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Normative statements are ( descriptive / prescriptive ) .
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Prescriptive.
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In the Markets for Goods and Services (on the Circular-Flow Diagram), firms ( sell / buy ) and households ( sell / buy ) .
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Sell, Buy.
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In the Markets for Factors of Production (on the Circular-Flow Diagram), firms ( sell / buy ) and households ( sell / buy ) .
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Buy, Sell.
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(T/F) Crusoe has the absolute advantage over Gilligan in producing both coconuts and fish, so he also has the comparative advantage in both.
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F
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Should economic models describe reality exactly?
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No
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Absolute advantage is given to the producer can use _______ _______ to produce a good.
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Fewer inputs
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Income is considered a ________ in the Markets for Factors of Production.
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Outputs
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Land, labor and capital are examples of ______ in the Markets for Factors of Production.
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Inputs
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Comparative advantage is based off which producer has the lower _____ _____.
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Opportunity Cost.
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Absolute advantage is given to the producer can use _______ _______ to produce a good.
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Fewer inputs
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What is the formula for calculating income elasticity of demand?
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% change in Qd / % change in income
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What is the formula for calculating price elasticity of demand?
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% change in Qd / % change in Price
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How do you find the % change in quantity demanded? (Fill in the blanks with "old" or "new.")
Qd ( ) - Qd ( )
Qd ( )
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new, old, old
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How do you find the % change in price? (Fill in the blanks with "old" or "new.")
P ( ) - P ( )
P ( )
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new, old, old
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What changes quantity demanded?
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a change in the price of the good
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What increases quantity demanded?
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a decrease in the price of the good
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What will increase the demand for Granny Smith Apples?
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an increase in the price of Kiwi style apples
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If the demand for a good X increases, then X and Y are:
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substitute goods
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Market supply represents the sum at eery price of each:
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individual firm's supply
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What happens to the supply of corn if the weather improves?
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the supply curve will shift to the right
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When Ford Motor Company introduced assembly-line production of the Model A car, the number of hours it required to produce a car went from 720 hours per car to 1.5 hours per car. This innovation resulted in which of the following
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it shifted the Ford Motor Company’s supply curve to the right
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The price of a complement for good X increases at the same time the price of an input for producing X decreases. What will happen in the market for X?
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P decreases & Q is uncertain
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If a surplus exists in the market for apples, what is likely to happen to the price of apples?
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decrease
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If a shortage exists in the market for apples, what is likely to happen to the price of apples?
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increase
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The diamond/water example yields a lesson that market price
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depends on both demand and supply
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A temporary increase in demand is more likely to result in an increase in price
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when inventory cost is high & the % of customers who are regulars is low
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With MB a consumer’s marginal benefit from a good, market demand schedules slope down because
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an individual’s MB falls as more is consumed & individuals differ in MB
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To optimize net benefits = TB minus TC
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produce where MB = MC
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If the price of Y increases when Q decreases
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the supply of Y must have decreased
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Washington apples sell for PW = $10 in Washington & PNC = $13 in North Carolina. It costs $2 per unit to ship apples from Washington to NC. Shipping cost in Washington is essentially zero. In the long run:
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the supply of apples will decrease in Washington & increase in NC until PNC - $2 = PW
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With horizontal supply, an increase in demand
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increases Q but P is unchanged
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f MB = $4 & MC = $7
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Increasing Q by 1 decreases net benefit by $3
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A hurricane is expected to reach land in two days What will happen in the market for bottled water (BW)?
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demand for BW will increase, & supply of BW will decrease
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Causation means
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either A causes B or vice versa
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Eco 2030 Exam 1