Econ 2150

price elasticity of supply

A measure of the responsiveness of the quantity of a product supplied by sellers when the product price changes

Market period

A period in which producers of a product are unable to change the quantity produced in response to a change in its price and in which there is a perfectly inelastic supply.

graphical

A principle of economics is often represented in a ____ expression

How do you derive a market demand curve from individual demand curves?

Add up quantities demanded by all individual consumers for each price

How do you derive a market supply curve from individual supply curves?

Add up quantities supplied by all individual producers for each price

normal goods

Also superior goods, as income increases, demand for these items increases.

inferior goods

As income increases, people buy less of these products

sacrifice, obtain

At any point in time, a fully employed economy must _____ some of one good to ____ more of another good

formula that measures the degree of elasticity of demand

Ed = percentage change in quantity demanded of X /percentage change in price of X

price elasticity of supply formula

Es= percentage change in quantity supplied of X / percentage change in price of X

What are two characteristics that lead to an upward-sloping supply curve

Increasing opportunity costs, Increasing marginal costs

What is the formula for measuring price elasticity of demand?

Percentage change in quantity demanded / Percentage change in price

Determinants of supply:

Prices of other related goods, technology, factor prices, number of producers

Major determinants of price elasticity of demand

Substitutability, Proportion of income, Luxuries versus necessities, Time

price elasticity of demand

The ratio of the percentage change in quantity demanded of a product or resource to the percentage change in its price; a measure of the responsiveness of buyers to a change in the price of a product or resource.

total revenue test

The ratio of the percentage change in quantity demanded of a product or resource to the percentage change in its price; a measure of the responsiveness of buyers to a change in the price of a product or resource.

unit elasticity

The ratio of the percentage change in quantity demanded of a product or resource to the percentage change in its price; a measure of the responsiveness of buyers to a change in the price of a product or resource. (=1)

total revenue

The ratio of the percentage change in quantity demanded of a product or resource to the percentage change in its price; a measure of the responsiveness of buyers to a change in the price of a product or resource. (P x Q)

Income elasticity of demand

The ratio of the percentage change in the quantity demanded of a good to a percentage change in consumer income; measures the responsiveness of consumer purchases to income changes.

cross elasticity of demand

The ratio of the percentage change in the quantity demanded of a good to a percentage change in consumer income; measures the responsiveness of consumer purchases to income changes.

the four fundamental questions

What goods and services will be produced; how will they be produced; who will get the goods and services; how will the system promote progress

production possibilities curve

a curve showing the dif. combinations of goods and services that can be produced in a fully employed economy, assuming the available supplies of resources and technology are fixed

budget line

a line that shows various combinations of two products a consumer can purchase with a specific money income, given the products' prices

other-things-equal assumption

all variables except those under immediate consideration are held constant for a particular analysis (ceteris paribus)

market

an institution or mechanism that brings buyers and sellers together

constant opportunity cost

an opportunity cost that remains the same as consumers shift purchases from one product to another along a straight line budget line

the budget line illustrates these concepts

attainable/unattainable combinations, trade-offs and opportunity costs, choice, income changes.

aggregate

collection of specific economic units treated as if they were one unit

marginal analysis

comparisons of marginal (additional) benefits and marginal costs

Which characteristics lead to a downward-sloping demand curve?

diminishing marginal utility, an increase in purchasing power as market price decreases

law of diminishing marginal returns

each additional worker increases output less after a certain point because there is a fixed amount of ovens and specialization becomes limited

increase in supply of resources, improvements in resource quality, technological advances

economic growth in the result of

factors of production

economic resources: land, labor, capital, and entrepreneurial ability

scientific method

economics relies on the ____ ____ to make principles

Price and total revenue move in the opposite directions, when the demand is

elastic

production possibilities model assumes

full employment, fixed resources, fixed technology, two goods

A reduction in market price will lead to a(n) ______ in quantity demanded

increase

An ______ in market price will lead to an increase in quantity supplied.

increase

Supply: price and quantity move in the same direction, an _____ in price will result in an ____ in total revenue

increase, increase

if demand is perfectly elastic, Ed = ___; if demand is perfectly inelastic, Ed = ___

infinity, zero

supply and demand curves ____ each other at equilibrium quantity demanded and supply quantity

intersect

economic resources

land, labor, capital, and entrepreneurial ability used in the production of goods and services

division of labor contributes to society's output through specialization bc:

makes use of differences in ability, fosters learning by doing, saves time, can be geographical

smallest level of output needed to attain all economies of scale and minimum long-run average total cost

minimum efficient scale

In the stock market, prices change in reaction to a ______ between quantity ______ and quantity ______.

mismatch, demanded, supplied

U.S. has ____ ____ economy

mostly free

Change in market price causes ____ ____ demand curve

movement along

A change in technology and change in factor prices causes ___ ____ to demand curve

no change

Market failure is the result of goods that have _____and non-excludable characteristics and goods that have _____ effects

non-rival; external

When demand is elastic, price and total revenue move in the ______ direction

opposite

economic growth

outward shift of the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology

long run

period long enough to enable producers of a product to change all the resources they employ

utility

pleasure, happiness, or satisfaction

Private firms will not produce public products because of low _____ ____ and the ___ ____ problem

potential profit, free rider

A change in the quantity demanded results from a change in _____

price

perfect inelasticity

price change results in no change whatsoever to demand

Generalizations

principles are based on ______ of human behavior

increase in supply shifts the curve to the

right

When demand is inelastic, price and total revenue move in the ___ direction because the percentage change in quantity is ____ than the percentage change in price.

same; less

change in consumer expectations causes ___ ____demand curve

shift in

change in income causes ____ ____ demand curve

shift in

change in price of related good causes ___ ____ demand curve

shift in

fixed costs and variable costs are distinct in the ___ ___

short run

If the long-run average total cost drops quickly to its minimum point and then rises abruptly, the industry will likely be composed of many ___ _____

small firms

When the price elasticity coefficient is less than 1, the percentage change in quantity demanded is _____ than the change in price

smaller

investment

spending that pays for capital resources

determinants of price elasticity of demand

substitutability, proportion of income, luxuries vs. necessities, time.

roles of entrepreneur

takes initiative to combine resources, makes strategic business decisions, innovates/commercializes, bears risk

law of increasing opportunity costs

the principle that as the production of a good increases, the opportunity cost of producing an additional unit raises

T/F Long-run average total cost falls as the firm realizes economies of scale and later rises when the firm experiences diseconomies of scale

true

demand-side market failures

under allocations of resources that occur when private demand curves understate consumer's full willingness to pay for a good or service

Economists say "price floors and ceilings stifle the rationing function of prices and distort resource allocation" because

when unrestrained, prices rise and fall to correct imbalances between the quantity supplied and quantity demanded in a market

differences in economic systems exist because of:

who owns the factors of production, what method is used to motivate, coordinate, direct economic activities