71 Cards in this Set
| Front | Back |
|---|---|
|
cross price elasticity of demand
|
responsiveness of quantity demanded of one good to changes in the price of another good
|
|
Rival means
|
One persons consuming the good means no one else can consume it. Ex) if I eat a hamburger, no one else can. Same with 2 people wearing the same pair of shoes. Doesn't work.
|
|
Excludable means
|
If you do not pay for the good, you cannot consume it. Ex) hamburger: if you don't pay, McDonald's won't sell it to you
|
|
Privates goods are
|
Excludable and rival
|
|
Quasi-public goods are
|
Non rival and excludable
|
|
Common resources are
|
Rival and non-excludable
|
|
Public goods are
|
Non rival and non excludable
|
|
Examples of private goods
|
Food
Clothing
Cars
Tv
Mail
Private school
|
|
Examples of quasi-public goods
|
Cable tv
Sirius xm
Satellite radio
Netflix
Hiking (with fence)
|
|
Examples of common resources
|
Roads
Internet
Fish in the ocean
Education in public school
|
|
Examples of public goods
|
Clean water/air
National defense
Hiking (no defense)
|
|
Public good that is non-rival and non-excludable
|
Fireworks
|
|
What is the problem with private provision of public goods?
|
Free riding which leads to market failure
|
|
Free riding definition
|
Everyone benefits but they don't have to pay for it
|
|
Common resources leads to the problem of
|
Tragedy of the commons
|
|
Tragedy of the commons definition
|
The tendency of a common resource to be overused
|
|
What causes tragedy of the commons?
|
Private incentive and social incentives do not line up
|
|
cross price elasticity formula
|
% change in quantity demanded of A/ %change in the price of B
|
|
if the products are substitutes, the cross price elasticity of demand will be
|
positive
|
|
if the products are complements, the cross price elasticity of demand will be
|
negative
|
|
if the products are unrelated, the cross price elasticity of demand will be
|
zero
|
|
income elasticity of demand
|
responsiveness of quantity demanded to changes in income
|
|
income elasticity of demand formula
|
% Δ in QD / % Δ in income
|
|
If the income elasticity is positive but less than 1 the good is..
|
Normal and a necessity
- Bread
|
|
examples of a normal necessity:
|
-milk, bread, eggs
-JC Penny's, GAP, Toyota Corolla, Ford Focus
|
|
if the income elasticity of demand is positive but greater than one the good is
|
normal and a luxury
|
|
examples of normal luxuries
|
-crab legs, steak
-gucci, banana republic
-audi, porsch
|
|
if the income elasticity of demand is negative then it is
|
inferior
|
|
examples of inferior goods
|
-fast food, spam
-walmart, old navy
|
|
price elasticity of supply definition
|
responsiveness of the quantity supplied to a change in price
|
|
price elasticity of supply formula
|
% change in qty supplied
____________
% change in price
|
|
because the supply is upward sloping, the price elasticity of supply will be
|
positive
|
|
if the price elasticity of supply is less than one, then supply is
|
inelastic
|
|
if price elasticity of supply is greater than one, then supply is
|
elastic
|
|
if the price elasticity of supply is equal to 1, then supply is
|
unit elastic
|
|
what is the primary factor that will effect price elasticity of supply?
|
passage of time
|
|
total costs
|
the total cost of all the inputs a firm uses in production
|
|
variables costs and examples
|
costs that change depending on how much output there is
(ingredients, drinks, labor)
|
|
fixed costs and examples
|
costs that remain constant, regardless of output
(rent, insurance)
|
|
how do you calculate total cost
|
TC=VC+FC
|
|
short-run definition
|
time period during which at least one input is fixed
|
|
long-run definition
|
the period of time during which a firm can vary all its inputs
|
|
difference between the short-term and the long-run
|
in the long run, all the costs are variable, in the short run, at least one cost is fixed
|
|
explicit costs definition/examples
|
cost that involves spending money (capital equipment, oven materials, ingredients, labor, rent, utilities, advertising, taxes)
|
|
implicit costs definition/examples
|
-income i could have earned at my next best job (lost interest or stock dividends)
|
|
profits are defined as
|
profits=total revenue-total cost
|
|
elasticity means
|
measure of how much one economic variable changes to changes in another economic variable
|
|
Why do we use elasticity and not slope?
|
slope is sensitve to the units
|
|
price elasticity of demand is
|
the responsiveness of the quantity demanded to a change in price
|
|
price elasticity of demand formula
|
% change in Q / % change in Price
|
|
How do you calculate the percentage change in price?
|
% Δ p2- % Δp1/(p2+p1)/2
|
|
is the price elasticity of demand is not the same as the slope of the demand curve?
|
NO
|
|
the larger the elasticity, the more ______ i am to price changes
|
sensitive
|
|
inelastic demand:
|
when percentage change in quantity demanded is less than the percentage change in price
-absolute value is elasticity is less than 1
|
|
examples of inelastic demand
|
gasoline, addictive goods (cigarettes), utilities, medicine
|
|
elastic demand:
|
when the percentage change in quantity demanded is greater than the percentage in price
-absolute value is greater than 1
|
|
examples of elastic demand
|
raman noodles, pepsi, vacations
|
|
unit elastic demand:
|
when the percent change in quantity demanded is equal to the percent change in price
-absolute value of price elasticity is equal to 1
|
|
perfectly elastic demands are:
|
horizontal, (undefined, ∞)
|
|
perfectly inelastic demand:
|
vertical, (0)
|
|
determinants of elasticity of demand:
|
1. availability of close substitutes
2. passage of time
3. luxuries versus necessities
4. definition of the market
5. share of a good in a consumer's budget
|
|
utility is
|
the enjoyment people receive from consuming goods pr services
|
|
utility measure ordinal:
|
give rankings of what you like, but the actual values are meaningless
|
|
marginal utility
|
the change in total utility a person receives from consuming an additional unit of a good or service
|
|
why is marginal utility more important than total utility in consumer decision making?
|
because optimal decisions are made at the margin
|
|
law of diminishing marginal utility
|
the more you consume of a good or service, the less utility each additional unit gives you
|
|
what does the law of diminishing marginal utility suggest?
|
that consumers experience diminishing additional satisfaction as they consume more of a good or service
|
|
the rule of equal marginal utility per dollar spent
|
spending should be allocated across goods so that the marginal utility per dollar spent is the same for each good
|
|
formula for utility per dollar spent:
|
MU1/P1=MU2/P2
|
|
the market for chevron gas price elasticity of demand is more elastic if
|
had more close substitutes
|
|
when referring to utility, budget constraint must be:
|
binding- means total spending must be equal to total amount available to spend
|
ECON 201: Exam 1