Econ Final Exam Quizlet

Explain Congestion Effect

A good becomes less useful when other people also use it (highway, prom dresses) (demand goes down)

normal goods

Goods for which demand goes up when income is higher and for which demand goes down when income is lower.

you can infer your customers marginal benefit from their _________ curve

demand

what. are the effects of a decrease in demand?

demand curve shifts to the left, prices being paid are lower, and there is less quantity

the more responsive buyers are to price changes, the more _________ the demand curve is

elastic

if the percent change in the quantity is larger than the percent change in price, is it inelastic or elastic?

elastic (think about why)

if there are more competing products, does that infer elasticity or inelasticity?

elasticity

individual demand curve graphs your p_____s

plans (penis haha)

an individual demand curve is a set of _______

plans!

an individual supply curve is a set of ________

plans!

opportunity costs arise when there are limited __________

resources muhf.ucka

what should happen to supply if the number of sellers in the market goes down?

supply goes down

wha should happen to supply if the number of sellers in the market goes up?

supply goes up

when price of diesel goes up, what does that do to the supply of gas?

supply of gas goes down, because all of the sudden it is more profitable to produce diesel now

what happens when quantity supplied exceeds quantity demanded

surplus

name the three tools government uses to regulate businss

taxes, price regulation, quantity regulation

when Nintendo released the switch, was that a surplus or a shortage? (lines were very long)

that was was. a shortage

price of gas falls by 20% and the quantity demanded increases by 10%, what is the price elasticity of gas?

the formula. is the % change in quantity demanded divided by the % change in price, so. it is 10%/-20%, which is -0.5

what is intensive margin

the higher the price, the more each seller produces

what is extensive margin

the higher the price, the more sellers enter the market

explain the market price

the market price is the. price that you can always sell something at

what happens to the supply of beer if the price of Vegemite goes up? (assume Vegemite and beer are complements in production / you can make more Vegemite if youre making a lot of beer)

the supply of beer will go up because if you produce more. beer, you can produce more vegemite

Economic Surplus

the total benefits minus total costs flowing from a decision

what is equilibrium?

the. point where there is no tendency for change, quantity demanded equals quantity supplied

when thinking about how to create a market demand curve, first add all the quantities together at each point, then multiply by the scale, and. then plot your projection

yeah thats it. chief, just make sure you actually read it

does taxes depend on elasticity or no?

yes it does

for the supply and demand analysis that we do, is perfect competition necessary?

yes it is

is the way to determine the market supply similar to the way the market demand is calculated?

yes, almost identical

could a price floor lead to blackmarket trading?

yes, because if the. price floor is too high and no one can afford it, people might start buying off of the black market

when should you buy one more? (apply the cost benefit principle to marginal decisions)

yes, buy one more if the marginal benefit is at least as large as the marginal cost

individual demand curve

how much you personally are willing to spend on certain things

is it easy to enter a market (supply) if so, elastic or inelastic ?

if it is easy to enter, it is elastic

shift right in the demand curve indicates an _________ in demand and a shift left in the demand curve indicates. a ____________. in demand

increase , decrease :)

how does a higher income affect normal good and inferior goods?

increase in demand for normal goods (demand curve shift right), decrease in demand for inferior goods (demand curve shifts left)

whats the difference between an increase in demand and an increase in quantity demanded?

increase in demand means a shift in the demand curve, whereas an increase in quantity demanded means movement along the demand curve

if there is a shortage, what do suppliers normally do?

increase price for their goods

why does an increase in supply do to price and quanitty

increases quantity at each price, decreases price at each quanitty

what does a price ceiling do to the quantity demanded and the quantity supplied

increases quantity demanded (because everything is cheaper) but decreases quantity supplied (because the ceiling cuts into the supply curve)

the market demand curve is basically just a combination of a bunch of ________ demand curves

individual

how much money Darren is willing to spend on. gas at different prices would be an example of an _____________ ___________ ___________

individual demand curve

what curve should we look at if we're trying to determine someone's marginal benefits?

individual demand curve

a company cannot change its production levels easily, is it inelastic or elastic?

inelastic

a company does not have the ability to change their supply quickly, is this supply elastic or inelastic ?

inelastic

which curve is more up and down, inelastic or elastic?

inelastic is more up and down (elastic is more Low slope)

do necessities have inelastic demand or elastic demand usually?

inelastic, people need them and have to get them no matter what

if the percent change in. quantity is smaller than the. percent change in price, is the demand curve inelastic or elastic?

inelastic. (think about why)

what is the simple rule with marginal principle?

instead of asking "how many", ask "one more?" this basically slows everything down, and instead of thinking about the big picture, like how many classes to take this semester, think about "can I handle one more class this semester?"

when your parents go to your sister's soccer game instead of your recital, what principle is applied?

interdependence principle, because that decision has to do with other decisions

for a thirty cent tax, who pays more? sellers or buyers?

it depends how the supply and demand curves are sloped

what doe substitutes have to. do with the price elasticity of demand?

it determines the elasticity

if both supply and demand go down, what happens to price?

it goes down as well

if demand is elastic and there is an increase in price, what happens to the new revenue?

it goes down, because even though price went up, because the demand was elastic, the quantity demanded went down by a lot

as productivity goes up, what happens to the supply curve?

it goes up, (shifts right)

as time goes on, does elasticity go up or down?

it goes up, because customers become. better at finding substitutes for the goods that they were buying, and they begin buying these other products

if demand is inelastic and there is an increase in price, what happens to the new revenue?

it goes up, because even though there is a decrease in quantity demanded, there is a large increase in price, so the revenue is bigger

when there are super long lines for a product (like a new video game system) what does that do to the effective price?

it increases the effective price because the effective price includes the time spent in line

what is a quota

it is a maximum quantity that can be bought or sold by an individual

if a market. is highly inelastic, what does this mean?

it is highly unresponsive

if a black market is created in regards to a certain product, what does that say about the equilibrium of that product?

it is out of equilibrium

what is money in economics problems and why is it so important?

it is the measuring stick and it is important because it allows us to measure objects against one another

if a market is highly elastic what does that mean?

it means it's highly responsive

what does a tax on buyers do to. the graphs?

it shifts the demand curve down

what does a. tax on sellers do to the graphs?

it shifts the supply curve up

what does price do to the demand curve?

it shifts up and down the demand curve, does not actually shift the demand curve

with a tax on sellers, you. start. the "+.30". so the top of the ".30" is at the top of the equilibrium

just a fact, understand it

how should you change your supply and production if you know price is going to be high tomorrow?

keep production high today, but decrease your supply today, so tomorrow you have a higher supply for the high price (supply curve shifts left)

how do you calculate bang for your buck?

marginal benefit (i.e food) divided by price (food)

the individual demand curve is the same as the _________ benefit curve

marginal!

what does economic surplus measure?

measures how much the decision has improved your well being

if the demand for workers is elastic, and you push the minimum wage up, what happens to the total amount of money. going to these workers?

money goes down, because even though they are making more money, there are so many fewer workers that overall they are not making. as. much money (think about a graph)

Every choice has an _____________ cost, even if there is no financial cost

opportunity

the market demand curve changes with WHAT?

PRICE MUHFUC_Ka

fixed costs

costs. that stay the same regardless of the quantity of output produced, ie buildings

rise in the price of inputs causes a _______ in supply

decrease

if there is as surplus, what do suppliers normally. do?

decrease. price

what does a decrease in supply do to quantity and price?

decreases quantity at each price, increases price at each quantity

why do marginal costs increase over time?

because of diminishing returns of each consecutive product

what are economic costs?

economic costs = accounting costs + sunk costs

youre offered a job at a healthcare place, and theyre going to pay you 80000, you would have accepted it if they payed you $60000, what is your economic surplus?

$20,000

what is the formula for price elasticity of supply?

% change in quantity supplied / % change in price

how do you calculate the price elasticity of demand?

% change. in quantity demanded / % change in price

a company is not running at full capacity, is it elastic. or inelastic?

elastic

what is the question you should ask yourself when analyzing opportunity cost

"OR WHAT" - "should I hire my best friend to work for me in my family business, OR HIRE SOMEONE ELSE" "should I invest in the stock market OR INVEST IN A SAVINGS ACCOUNT"

when determining market supply, who. should. be surveyed?

ALL POTENTIAL SUPPLIERS

suppliers and demanders have an incentive to change when the market is at equilibrium, T/F

False

Cost Benefit Principle

Evaluate the full set of benefits and costs of any choice you face, and only pursue that choice if it yields benefits that are at least as large as the costs.

SHIFT RIGHT MEANS ???

IT GOES UP

is anything ever truly perfectly inelastic?

No, because at a billion dollars, no one could afford certain goods and the quantity demanded. will go. down

does production equal supply?

No, especially when it is a storable good

do markets bring buyers and sellers together or drive them apart?

TOGETHER

if demand and supply both decrease, what does this do to price?

TRICK QUESTION, it depends on which is bigger

a change in plans shifts the demand curve, but a change in price does not, True or False?

TRUE

it is irrelevant to think about fixed costs when thinking about the "one more" question, because they dont change when another unit is produced. TRUE OR FALSE

TRUE

What are the effects from an increase in demand?

The demand curve shifts to the right, increasing quantity at every price, also increasing price buyers are willing to pay at every price

Seller's perspective on $3 coffee thats worth $1 to him; what principle is employed?

They're making $2 because thats benefit minus cost. Cost benefit principle

inelastic means rigid? T/F

True

are each of us actors in markets?

YES

inferior good

a good that consumers demand less of when their incomes increase

define price ceiling

a maximum price that a seller can charge

price floor define it

a minimum price that sellers can charge

define subsidy

a payment made by the government to those who make a specific choice (essentially a negative tax) (i.e. couples pay less because they are married)

explain the idea of inelasticity in your own words

as you change the price and make it more expensive, not a lot. of people are going to stop buying the product, because they likely need it (i.e. snake. venom antidote, flowers for their significant other on valentines day)

what is the substitution effect when it comes to your demand curve?

as you keep purchasing something, your bang-for-your-buck rises as time goes on, (compared to another good)

how many cups of coffee should you buy if you apply the equi-marginal rule?

buy as many cups until your marginal benefit is equal to the cost of a cup of coffee

think of a good that is fairly elastic

cereal, restaurants, t shirts

explain extensive margin

cheaper something is, more customers you get

explain intensive margin

cheaper something is, more each customer buys

define variable costs

costs that vary with the quantity of output produced, ie wages

when we are thinking about a supply curve, we assume perfect __________

competition

your individual supply curve is the same thing as your marginal _______ curve

cost

five factors that shift market supply curves

cost of inputs, productivity and technology, other opportunities, expectations, number and type of sellers

price of shorts increases, what happens to the demand for jeans?

demand for jeans goes up

win the lottery, what happens to your demand for ferraris? (think normal goods)

demand for this normal good increases

whats an. example. of a good that is perfectly elastic?

dollar bills, gas, (you will buy infinity dollar bills @. $0.99 but buy zero @. $1.01)

demand curves are always _________ sloping

downward

price ceilings cause surplus, true or false

false, they cause shortages

a more productive refinery can produce the same output with ________ workers

fewer!

What needs to be evaluated when considering the cost benefit principle?

financial and non financial costs and benefits

Framing

framing refers to how different alternatives are described, or framed

Buyer's perspective on $3 coffee thats worth $5 to him; what principle is employed?

he's making $2 because thats benefit minus cost. Cost benefit principle.

what is the equi-marginal rule?

if something is worth doing, keep doing it until your marginal benefits equal your marginal costs

when should you buy another gallon of gas? (think cost benefit principle)

if the benefit of. buying one more gallon is greater than the cost of buying another gallon

when does it make down to shut down a firm?

if your revenue does not exceed your non-sunk costs, then shut down

what are some of the five things that affect individual demand curves (and ultimately market demand curves)

income, tastes, prices of other goods, expectations, network and congestion effects

what will happen at a certain point when you hire too many workers? (explain it in economic terms)

more workers will eventually lead smaller increases in output, and the output of an additional worker will not be as large as the previous worker's

does change in price mean a change in the supply curve?

no, it means a shift ALONG the supply curve, it causes an increase or decrease in the quantity supplied

out of all of these, which does not shift individual supply curve and shifts the market supply only - cost of inputs - your productivity and technology - expectations - number and type of sellers - price of other outpus

number and type of sellers shifts ONLY market supply curve

markets transform your desire into a_________

price

if supply goes down, what does that do to price considering the demand is consistent ? (use hands as a. graph and think)

price goes down, because since demand is downward sloping, it always goes down

if demand goes up, what does that do to price considering a consistent supply? (use hands as a graph)

price goes up because it is higher because the supply slope is upwards

what does an upward sloping supply curve mean? (price and quantity)

price increases with quantity

with demand curves, the quantity demanded is higher when ___________ is lower

prices!

will firms enter the market if production if profitable? what if it is unprofitable?

profitable - yes, unprofitable - no mf

does a tax on sellers shift the curve for demand or supply?

shifts the supply curve up, new price is the equilibrium

what happens when quantity demanded exceeds quantity supplied

shortage

whats the difference between elasticity and slope?

slope = change in price over change in quantity, but elasticity equals % change in. price over % change in quantity

what are sunk costs?

sunk costs are costs that have already incurred and cannot be reversed

a firm's cost can be inferred from a firm's _______ curve

supply

market outcomes are determined by forces of __________ and ___________

supply and demand

mandate, define it

the minimum amount of a good that can be bought or sold (ie car insurance or health insurance)

opportunity cost principle

the opportunity cost is the most valuable alternative you must give up to get it

define equilibrium price

the price at which the market is in equilibrium (think about it for a min)

define equilibroum quantity

the quantity demanded and supplied in the equilibrium (think about it for a hot min)

economic surplus

total benefits minus total costs

market demand

total quantity demanded by the market, at each price

price floors cause surplus

true

give a rough understanding of the interdependence principle

understanding how the consequences of your actions account for others's decisions and understanding how your decisions depend on the choices of other people in the market, and how markets depend on other markets, and how today's decisions depend on yesterdays and tomorrows decisions

with a tax on buyers, you start the "+.30" at the bottom of the ".30". equilibrium

undetand. it plz

supply curves are always ____________ sloping

upward

all supply curves are __________ sloping. the higher the price, the _______ the quantity supplied

upward, higher

price is on the _______ axis and quantity is on the _________ axis

vertical, horizontal

is the demand for drugs elastic or inelastic?

very inelastic (users need their fix and will pay any price for it

think of a good that is inelastic

water, episode pen, human organs, valentines day roses

explain law of diminishing returns

when a fixed input is held constant, the increases in the variable inputs will at some point begin to yield smaller and smaller increases in output

when does economic costs occur? (hint: think about economic costs and revenue)

when economic costs are higher than revenue

when is economic surplus maximized?

when marginal benefit equals marginal cost

explain network effect

when other people use something, it becomes more useful for you to use it (i.e. Facebook or Twitter) (demand goes up)

explain complementary goods and their effects on the demand curve

when price increases for complementary goods, demand for the good in question decreases

explain substitute goods and their effect on the demand curve

when price of substitute goods increases, demand of the good in question rises,

how does a change. in taste affect demand curve?

when something becomes unfashionable, demand curve shifts left, when something becomes or stays fashionable, it shifts right

when using the midpoint formula for elasticity, subtract the change in quantities demanded on. top, and then divide by the addition of the quantities demanded divided by two on the bottom. do the same thing for the prices, and then what do you do?

you do the new change in quantity demanded. over the new change in price and thats your final answer

when talking about demand and supply as it has to do with equilibrium. price and equilibrium quantity what is your first step always

you gotta draw a graph first, please dont forget to do this

if you want less. gasoline to be produced, what should. you subsidize, diesel or gasoline? (assume diesel is a substitute in production for gasoline // subsidize means to support it by the government)

you should subsidize diesel because this means diesel is more profitable to make and the supply of gasoline will g down

income effect

your purchasing power goes up as time goes on, and you have more income, and this means that normal goods become inferior goods