micro unit 2`

inelastic demand

-% change producers small % change in q demanded d inelastic -less than 1 -price decrease TR decrease (increase in sale not offset decrease revenue per unit, TR decrease) -increase P increase TR -other equal things equal, when price and TR move same direction demand inelastic Ed less than 1 -make graph -Q demanded changes by smaller % than price

Deadweight loss on graph

-Compare q produced with and without tax -horizontal distance between them is unattainable output because of tax

elastic graph

-D on lesser slop so that % change Q demanded bigger than % change in P

elastic burden

-DWL significant -producer burden bigger than consumer -increase price drives people away so decrease Q so can't charge anymore

elasticity of demand

-Ed -responsiveness of consumers to a change in price -always negative but usually ignore negative and use absolute value (doesn't influence S cause P and Q are positively related) -Ed equal to % change Q D divided by % change P equals absolute value X -relative to 1 -if Ed less than 1 then inelastic (% change P greater than % change quantity demanded) -Ed = 1, then (% change Q = % change price) unit elastic (curve at 45 degree angle) -is usually elastic if luxury, inelastic if seen as necessity

Ei insight

-Ei provides insight for economy -recessions occur income decrease, Ei helps determine which products will have demand decrease more rapidly than other -high Ei hit hardest by recession, low/- Ei less affected (usually are essentials like food) -if positive normal if negative inferior

allocative efficiency occurs at market E when

-MB=MC -Max willingness to pay=min acceptable price -total surplus is at max -properly functioning markets achieve allocative efficiency -other markets cannot do a better job than functioning markets economists prefer resources allocated by market

Relative prices

-Number of units of any other good Y that must be sacrificed to acquire the first good X -only relative prices matter

rationing function of prices

-ability of competitive forces of supply/demand establish price where selling/buying decisions are constant -eq stops shortage/surplus -market outcome: buyers willing/able buy product if not wont; producers willing/able to sell product if not wont

price elasticity of demand

-aka responsiveness -law demand (increase demand increase price and vice versa)- how much increase/change varies product to product and changes over time -how responsive/sensitive consumers are to price change of a product is measured - elastic or relatively elastic -relatively inelastic (inelastic)

collective consumer surplus

-all buyers consumer surplus added together (obtain Q1, consumers willing to pay higher but pay less -consumer surplus area lies below demand curve above price line extends horizontally from P1 -consumer surplus and price inversely related

efficiency revisited

-all downsloping demand curves and upsloping supply curves yield consumer/producer surplus -because assume demand curve reflects full buyer's/seller's willingness eq shows economic efficiency -productive efficiency achieved because competition forces producers use best tech and combinations of resources available (min per-unit costs) -allocative efficiency achieved correct q goods produced relative to other goods (MB=MC) -Q1 correct q (realize resources directed from one product can go to somewhere else, so take resources from other products if brings more utility devoted to this product than other products) -supply MC curve, demand curve MB (willing to pay equal to benefit received if consumed goods) -point represents consumer max willingness to pay had MB received -every unit up to Q1 MB greater than MC (MC includes OC of not making other things) -Q1 correct q of product (d/s curve max willingness to pay and min acceptable price; when max willingness to pay exceeds corresponding min acceptable price on supply curve, each unit adds a positive amount to surplus max willingness-min acceptable price= consumer producer surplus, means produce more utility than if producing something else) -as long as max willingness is greater than to pay is greater than min acceptable price, people willing to pay more to consume units than anything else produced with same goods -only at Q1 does max willingness to pay=min acceptable price society exhausted all opportunity producing units benefits exceed costs (allocative efficiency) -Demand MB curve because max price willing to pay equals benefit they will receive -supply MB curve because min price willing to charge equals costs of production

law of supply

-at higher prices producers make more available, at lower prices make less available -positive/direct relationship between price and supply -price increase, supply increase and vice versa -firms produce more at high prices than low -price= revenue (incentive to produce/sell product) -manufacturer usually has increase marginal cost as increase production; can't expand capital quickly, use labor to increase output but becomes cramped, each worker produces less output and mc continues to increase so firm will not produce costly units unless increase price for them

consumer surplus

-benefit of surplus received by consumers in market -different max price willing to pay for unit of product depends on OC of person's consumption alternatives (if willing to pay 1.25, no he wont pay more than that, forgoing other goods) -pay more than willing to give up for other goods -price change from eq to top of demand curve times quantity times 0.5 -draw -equilibrium last person willing to buy -pays same price no matter willingness to pay, if willing to pay more than eq produces consumer surplus -charged less than 1.25, is 1.25-price -consumers gain greater utility in dollar terms from purchase than expenditures (product price times q) -lower prices mean larger consumer surpluses

complex cases D and S

-both demand and supply change, combination of individual effects -need dotted line -if d decrease so q must decrease because some just do not want product no matter the price -demand influence q which influences p

markets

-brings buyers "demanders" and sellers "suppliers" -local, international, international, faceless, face to face -most highly competitive have high number buyers/sellers standardized products (wheat, stock, foreign currencies) -involve demand, supply, price, quantity

substitute good

-can be used in place of another good -increase price of one good increase demand of another good; decrease in price decrease demand of another

Inferior options for MU

-can buy different number but not the same amount utility -or need more money for same/more marginal utility -or don't use all of their money

deriving demand curve based on MU

-can derive single consumer's demand by considering alternative prices of oranges and then the quantity they will be sold at -can find best combination of goods to buy based on price, so no will buy 3 oranges if cost 3 dollars -when price changes find new combination of goods, so that 4 oranges will be bought when price is a dollar less

technology

-can make faster and easier to produce; produce output with less resources (costly, use fewer decrease costs increase profit per unit and supply) -conveyor belt (not much human input; decrease cost when decrease labor, so willing and able to produce more at same price cause tech made is easier/cheaper to produce

unit elasticity

-cause separating elastic and inelastic d occurs percentage in p and resulting % change in quantity demanded same -equals 1 -increase/decrease price leaves TR unchanged (loss R at lower unit price exactly offsets by gaining revenue from increase in sale and vice versa) -TR doesn't change other things equal (demand unit-elastic or unitary) -Q demanded changes same amount as price

change in quantity demanded

-change in demand shift demand curve left/right (change in determinants) -movement from one point to another (1 price/quantity to another cause increase/decrease in price of product) -D1 to D2 change in demand; movement from point A to B change in quantity demanded (demand not changed curve remains same)

changes in demand

-change in determinants/data/schedule -increase in demand consumers want to buy more of good then demand curve shows, shift right -decrease in demand consumers buy less at possible price than in demand curve, shifts to left -determinants: tastes, number of buyers, consumers' income, price related goods, consumer expectations -supply same demand increase, e higher value on both price/q axis; increase demand raises e price and e quantity -D increase price increase q increase -D decrease price decrease q decrease

-tastes

-change in preferences that makes a good more desirable means more will be demanded at each price (demand increase shift right, decrease left) -new products change price (digital cameras) -concern over health hazards (broccoli) -when team wins gain fans

price of related goods

-change price of related good increase/decrease price for product, depending on if good is a substitute or compliment -substitute good -complimentary good -unrelated good -gas prices decrease, demand gas guzzling vehicles increase

efficiency loss from overproduction

-combined consumer/producer surplus declines -loss subtracts from total consumer and producer surplus that would occur is q was q1 -for all units from 0 to Q1, benefit exceed costs, create economic surplus (when produce units where costs exceed benefits, minus this loss from economic surplus) -producing any unit beyond Q1 makes loss, willingness to pay less than cost of produce -when demand reflects consumers' full willingness to pay and when supply reflects all costs, eq q= allocative efficiency

market demand

-competition requires more than 1 buyer in each market, adding quantities demanded by all consumers at each of various possible prices, get from individual to market demand -total quantity demanded on x -competition usually hundreds or thousands so assume all are willing and able to buy same amount at specific price (times those amounts by buyers to get total q) -assume determinants of demand are constant when demand curve is drawn

efficient allocation

-competitive market allocates society's resources efficiently to particular product -competition forces competitors use best tech and right mix of resources; if didn't costs would be too high compared to market price (unprofitable) -productive efficiency -competitive markets produce allocative efficiency (eq price in competitive markets produces right assignment of resources (demand MB, supply MC; market ensures firms produce when MB greater than MC no units when MB less than MC) -intersection of demand/supply curve allocative efficiency MB=MC

Marginal utility per dollar

-consumer choice influenced by extra utility and price -compare extra utility from products with its added costs -MU of product a divided by price a compared to MU of product B divided by price B

supply shifters

-cost major factor of supply curve -anything affect cost shifts supply curve -determinants of supply -supply curve usually drawn assuming they are constant -shift whole line -resource prices, technology, price expectations, prices of other goods, taxes, subsidies, number of sellers -shift curve right increase supply shift curve left decrease supply

taxes

-cost of production (can't produce without paying too) -increase cost of production decrease profit decrease ability to supply -cost taxes decrease cost production increase profit increase supply

substitute goods cross elasticity

-cross elasticity demand is positive (sales x same direction as change in price of y) -price increase one product increase demand of another -larger coefficient greater substituability is -Ewz greater than zero (Q demanded of W changes same direction as change in price of Z

complementary goods cross elasticity

-cross elasticity negative -increase price decrease demand for other -larger negative coefficient greater complementarity is -Exy less than 0 (Q D x changes in opposite direction from change in price of Y)

unit elastic demand

-d 45 degree angle -price decrease q increase by same amount -max profit when MC=M revenue

market equilibrium

-decisions of buyers/sellers determine equilibrium price and quantity of product -assume competitive market so buyers/sellers set the price

s increase d decrease

-decrease price so result decrease price greater than one change alone -increase supply increase eq q, decrease demand decrease Q -eq p decrease effect eq q indeterminate -direction depends on relative size of S and D -increase s greater than decrease demand, eq q increase -increase s less than decrease d, eq q decrease

s decrease d increase

-decrease s increase d increase eq price greater than would be separately; eq quantity indeterminate -decrease s greater than increase d eq q decrease -decrease s less than increase d eq q increase

elasticity

-degree changes in prices/income offsets supply/demand -based on this, gov knows what to tax, businesses better job knowing what to produce -how responsive group is to a change

changes in supply

-demand constant but supply increase, new eq at lower prices but higher quantity -increase supply decrease eq price increase q -s decrease eq price decrease eq q decrease

demand-side market failure

-demand curves not reflected consumers' willingness to pay for goods/services -impossible sometimes to charge what consumers are willing to pay for a product -can't change what you charge for public fireworks, so don't produce them -can also occur if not enough competition

inelastic graph

-demand heavily slanted so price change bigger than quantity change -tax inelastic products for increased revenue

what is elastic demand

-demand is elastic if % change price results larger % change q demanded -decrease price increase TR -even though lesser receives fewer profit per unit enough additional units sold make up for lower price -price increase TR decrease (TR gained on higher priced units offset by revenue lost from lower quantity sold -other-things-equal assumption price and TR move in up direction when d elastic (change in q demanded greater than change in price) -demand elastic decrease price increase TR -even though lesser P received per unit enough additional units sold make up for lower price -increase price decrease TR (TR gained on higher price per unit offset y rev lost from lower q sold -other things equal, TR and P move in opposite direction -% change Q demanded greater than % change in price -make graph

demand vs quantity demanded

-demand number consumers willing and able to buy at various prices (increase number consumers willing to buy at all various prices); demand determinants -quantity demanded on same line A to B; when more does not increase amount people want at various prices; not changing amount people want at various prices; sell more product only because lower price; determinant price

substitute

-easy sub for product increase choice, if P increase can choose other products -larger number substitutes available more elastic product is -elasticity and number of subs depends on how narrowly product defined (hard to replace shoes easy to replace Nike) -fast food interchangeable (burgerking and mcdonalds) -Chickfila doesn't have close sub so less elastic

s increase d increase

-effect eq p indeterminate eq q increase -supply increase greater than increase demand eq price decrease -increase s less than increase d eq p increases -if change same amount doesn't influence price -s increase and d increase raise eq q (eq q increase greater then caused by each separately)

s decrease d decrease

-effect indeterminate eq p and decrease eq q -decrease s greater than decrease d eq p increase -decrease s less than decrease d eq p decrease -decrease s and d derease eq p

price elasticity along linear demand curve

-elasticity varies over different price ranges of same demand curve -all down sloping straight line and most other demand curves, demand more price elastic towards higher left than lower right -result because arithmetic property of elasticity measure -upper left % change quantity large cause original reference quantity small -% change p small in segment cause original reference price large -large % change q divided by relatively small change price yield large Ed (elastic demand) -lower right % change quantity small cause original reference large, % change p large cause original reference price small (rel small % change q divided by relatively large percentage change in price= small Ed (inelastic) -d curve slope not basis for judging elasticity because computed from absolute change, while elasticity uses relative or % change p/q

perfectly inelatic

-equals 0 -price change results in no change in d

consumer expectations

-expectation of higher future price cause consumers to buy to "beat" anticipated price rise, increase demand -hot real estate market (buyers rush to buy because think price will increase) -belief in change of future income so change spending (workers afraid losing job decrease vacations) -if think price increase will buy now cause is cheaper now

how do you increase demand

-favorable change in consumer taste -increase number buyers -increasing income if normal good -decreasing income if inferior good -increase price substitute good -decrease price complimentary good -consumer expectation that prices will be higher in the future

Algebraic generalization MU

-generalize utility maximizing rule by saying consumers max satisfaction when allocates money so last dollar spent on A,B,etc gets same amount of utility -MU of product a divided by price should equal MU product B divided by price -if equation not fulfilled reallocation of consumer expenditures between A and B to increase TU -MU of A/price a less than MU of B/price -get more satisfaction by producing more B less A -put more money to B so utility of A will increase while MU/$ of b will decrease so they are equal -goal make them equal -equal sign balance beam (don't do something unless causing balance)

tax

-generate revenue, curbs the selling/buying of a good -additional cost of production (can't produce without paying per unit, excise, tax) -sales tax impact production because businesses have to give the check to the government, consumer just helps pay the burden

market supply

-get by adding supply curves of individual producers at each price

subsidies

-given to producer to make something (money) -decrease costs increase supply -dairy farmers get paid per gallon they produce (without, price milk would be between 5-6 dollars per gallon) -decrease subsidies decrease profit decrease supply -offset cost of production, increase profit increase supply -gov doesn't want expensive milk because feel children would have less of milk they need, lead to health complications later on -anti-tax -payment to do something or produce something -per unit -increase Q

non tariff barriers

-government set unrealistic restrictions on importation of foreign product -set higher restrictions on safety inspection of cars to decrease foreign cars -go from 6 to 20 cars to crash, either company refuses or supply decreases anyway -embargo trade restriction

efficient market hypothesis

-government stays out of economy, drive of people will eliminate excess/shortages decrease q altering efficiency , if let market stay on own; tax prevents efficiency from being reached -not always bad things like efficiency with cigarettes (not making as much as could) -great way get people stop buying something

efficiently functioning market

-if competitive market is to produce efficient outcomes demand curve must reflect consumers' full willingness to pay and supply curve reflects all costs of production -if have this, market will only produce units which benefit are at least equal to costs (maximize benefit surplus) -produce consumer surplus and producer surplus

total revenue test

-importance of elasticity for firms effect price changes on total revenue and then profit (TR - cost) -TR total number sellers receives from sale of product in a specific time period -TR and price elasticity demanded related -easiest way see if demand is inelastic or elastic use TR test -what happens to TR when price changes, TR changes opposite direction from price, demand elastic -if change in same direction as price inelastic

why essential goods sometimes cheaper than luxuries

-in greater supply sometimes for necessity so price reflects that -use water so much that as mu continues to decrease need cheap price in order to pay it -few diamonds purchased because high price so mu has not decreased much so can keep price high -water much more total utility

number of buyers

-increase buyers increase demand, decrease buyers decrease demand -number older people increase, increase demand for medicare -immigration from mexico increase, increase demand mexican food products in store -better communication create international market -decrease international trade agreements decrease barrier increase trade -emigration from rural areas decrease need for housing -expand ugg market to guys

consumer income (types of goods)

-increase in income increase money to spend increase in demand -decrease demand as income decreases (people feel less secure) -superior goods (normal)- products whose demand varies directly with income -exception is inferior goods- goods whose demand varies inversely with income

unrelated goods

-independent goods -vast majority goods not related to one another -change in price little/no effect on demand for other

demand curve

-inverse relationship between price/quantity demanded for a product represented by graph -quantity demanded on x -price on y -downward slope reflects law of demand, people buy more as price decreases

quota

-limit on quantity -limit number of something that can be produced foreign and domestic -if meet ok, if less ok, if above bad -manipulate price and quantity not demand -can not import more 1000 foreign cars (help domestic industry decrease competition with foreign companies

time

-longer evaluate product more elastic it become (If p stay high choose other action buy less) -gas from $1 to 3$ hard to change on short term (inelastic) over long term elastic because buy more fuel efficient cars -consumers need time to adjust to change (to experiment with subs) -product durability (short run inelastic long run elastic)

Decision making process MU (table)

-look at marginal utility per dollar and buy unit with the most -remember that just because buying one good doesn't mean you consume the other product so still have first good marginal utility -when both products same marginal utility can buy both (or just 1 if not enough money)

deadweight losses

-loss of efficiency because of tax -value of how much product being lost because of tax -product not produced -difference in price times difference in q times 0.5 -reductions of combined consumer and producer surplus (result from under or overproduction)

why do losses occur from over or underproduction

-losses occur when demand not reflected full willingness to pay or supply doesn't reflect all costs -market failure

equilibrium price

-market-clearing price -where intentions of buyers/sellers match (quantity demanded and quantity supplied) -only at one price -equilibrium quantity (number intentions buyers/sellers match; q demanded equals q supplied) -intersection of supply curve and demand curve (no shortage/surplus; balance/equilibrium) -competition among buyers/sellers drive price to eq, stays unless disturbed by demand/supply -above eq price, number supplied exceeds demand surplus decrease price to get buyers to take surplus -incentive to produce decrease incentive to buy increase move to eq -shortage when number demanded more than number supplied; buyers willing to pay more to obtain drives up price to eq

intersection

-markets: prices adjust eq level where d=s -eq p/q = intersection on supply/demand curve -eq p/q change directions seem odd with law of demand and supply cause other-things-equal assumption is violated

price ceilings

-max price seller charge for good/service -price bellow/at ceiling legal, higher is not -allow customer to obtain essential good/service could not afford at eq price -rapidly rising prices, put ceiling to prevent problems, creates shortage -higher demand than supply can provide -stops market adjustment ( competition increase price, increase supply rations some buyers out of market)

rent controls

-max rents established by law (max rent for tenants) -protects low income families from increase in rent cause housing shortage (housing more affordable for poor) -decrease eq rent attract increase number of renters and producers less incentive to offer housing (sell units, convert to condos, decrease rent unprofitable to repair/renovate unit -potential investors invest in places rent not regulated, too many resources other not enough for housing

income elasticity of demand

-measure degree consumers respond to change in income by buying more/less of good -Ei -Ei = % change q d divided by % change in income -normal (superior) goods: most goods, demand increase when income increase -Ei greater than 0 (Q demanded of product changes same direction as change in income) -inferior goods= negative Ei, decrease purchase as income increase (used goods) -Ei less than zero (Q D of product changes opposite direction from change in income)

cross elasticity of demand

-measures how sensitive consumer purchases of a product (X) are to change in price of other product (y) -Exy -Exy equals % change Q D of product x divided by change price of product y -can be positive or negative -substitute or complementary goods

price floor consequences

-mess up rationing ability of prices -distort resource allocation (cheap eq causes producers to switch to other products so consumers pay higher prices for lesser supply; too many resources to wheat fewer to other) -increase taxes -environmental damage encourage use marginal (bad) land in production -higher prices higher import of product, increase quantity supplied: gov makes tariffs to keep foreign goods out so they increase our tariffs

price floor

-min price fixed by gov -price at or plus floor legal, below not -above eq involved society feels market system not provided enough money to suppliers/buyers (min wage) -quantity supplied greater than quantity demanded surplus -graphical analysis (draw graph) -cope by restricting supply (farmers agree to not use a certain amount of their land) or increasing demand (find new uses for product) which decreases surplus -gov purchases surplus output at floor price and store/dispose of it (subsidized) -only way effective is if above eq

Absolute prices

-money prices -price of good measured in units of currency

Law of diminishing marginal utility

-more consume less usefulness per unit -won't get same number of happiness from different products -theory of consumer behavior -added satisfaction decrease as consumer gets additional units of a given product -want over all cannot be satisfied but it can for a particular product can be

number of sellers

-more suppliers greater market supply -number firms increase, curve goes right, decrease goes left -have people not willing to supply decrease supply

resource prices

-most what produce requires economic resources (cost money) -increase price increase expenses decrease profit less incentive to make product -decrease resource prices decrease costs increase profit increase incentive -price crude oil decrease, refineries willing to make more gas at various prices cause expenses decreased

change in quantity supplied

-movement from 1 point to another on curve (caused by change in price of product considered)

luxury or necessity

-necessity inelastic because have to have it -luxury elastic can go without it

cash noncash gifts

-non cash may not match recipient's preferences wont add much TU (money has choices so higher TU) -Uncle buys CD for 15 when you would have spent 5, wasted 10 dollars -recycle gifts, registries, cash refunds prevent loss

law of demand

-other things equal, as prices decrease demand increases, as price increases demand decrease, inverse relationship (people buy as long as feel benefit) -inverse relationship because as price increases more obstacle to buy so buy less; diminishing marginal utility; income effect; substitution effect -other things equal assumption is important -buffets (decrease quality of food but large variety so can charge cheap prices, feel as if getting something for free)

efficiency loss from underproduction

-output falls from efficient Q1 to smaller Q2 -sum of consumer/producer surplus falls, since members of society represents efficiency loss for society -for ouput levels from Q2 to Q1, max willingness to pay (reflected by points on demand curve) exceeds producer's min acceptable price -failing to produce untis of product a consumer is willing to pay more than producer willing to accept, suffers decrease net benefit -resources should have gone to this goes somewhere else that producers less utility than other good -total net loss of benefit results from falling units from q1 to q2

inelastic (burden)

-pay larger amount of burden decrease Q less than if were unit elastic -DWL less cause Q changes less -consumer burden extra price -producer burden vertically stops at original price

excise tax

-per unit tax (usually on independent items/products -prevent people from buying product -get people stop smoking -tax increase cost decrease supple (less incentive because decrease per unit)

Revenue collected from government for tax

-per unit tax (vertical distance between supply curves) times new quantity

short run

-period too short to change plant capacity long enough use fixed sized plant more/less intensively -farmer uses more labor, fertilizer, pesticides increase production -graph -45 degree angle supply -price change a little quantity change a little

government set prices

-prices in markets free to increase/decrease to equilibrium levels no matter how high/low eq is -decide supply/demand produce products unfairly increase for buyers or decrease for sellers -government legal limits how high/low prices can go -good intentions bad economic consequences -cause shortages/surplus

total surplus

-producer/consumer surplus combined

price (producer) expectations

-producers expect prices increase so decrease production to hold onto product; expect prices decrease so produce more before it occurs (increase supply Iphone 6 before decrease in price cause of Iphone 6s)

Consumer choice assume

-rational behavior (want get more for money) -preferences are clear cut and know what the MU per dollar is -budget constraint is fixed because fixed amount of income -prices don't change based on units a person buys of a product

ceiling problem

-rationing problem: unregulated shortage does not lead to fair distribution of goods (gov needs system to ration to consumers; ration coupons, equal distribution despite wealth) -black market: buyers willing to pay more than ceiling, profitable to sell above ceiling, black market sells/buys illegally above price; counterfeit coupon -price now "set by gov" so feels pressure to make prices even lower -quantity demanded greater than quantity supplied shortage -only way efficient is if below eq

elasticity of supply

-responsiveness of producers to change price of what they make -measure responsiveness of supplier to good they sell/make -not factoring production cost -Es= elasticity of foreign good -Es= % change Q supplied divided by % change in price (price of finished good)

demand

-schedule or curve show various amount of product consumers are willing and able to purchase at a series of possible prices during specific time period price increase demand decrease price decrease demand increase draw demand curve x axis quantity y axis price -table doesn't say which one exists, depends on interaction between buyers/suppliers ( needs specific time period to be valuable, without time don't know if demand is high or low)

supply

-schedule/curve showing various amounts of products producers are willing and able to make available for sale at series of possible prices during specific time period (shows number goods that will be produced at various prices) -positive slope

supply curve

-shows supply graphically -upwards slope reflects law, producers offer more of product as price increasE

TR curve

-slope increases until reaches max then decreases -compare curves of TR and D focuses on relationship between elasticity and TR -price and TR change opposite direction D elastic -unit elastic in middle curve cause change doesn't influence TR -left side curve elastic because P and TR move different directions -right side inelastic because P and TR move in the same direction

perfectly elastic

-small price decrease gets buyers to increase demand from no products to all they can obtain -equals infinity

determinants of Ed

-substitute, income, luxury or necessity, time

prices of other goods

-substitutes or compliments -increase supply of whip cream because more people want pumpkin pie and its compliment -sometimes firms use goods to produce other goods; higher price other good, more switch to them to increase profit (other goods profit decrease switch resources to first good)

supply-side market failure

-supply curve does not reflect full cost of producing good/service -firm not pay full cost of producing output -firm not charged for smoke releases -market failure because not possible for the market to weigh costs/benefits of a situation (some costs unaccounted for) -firm produces more smoke than would if had to pay for them (extra units greater than benefit)

no TR test for elasticity of supply

-supply positive/direct relationship between price and number supplier -supply curve upslope -regardless of elasticity/inelasticity price/TR move together

tariff

-tax per unit on imported goods -make foreign goods cost more -if way more expensive decrease demand -gov make revenue from it (not normal because promote free trade, decrease tariffs) -excise tax on foreign goods

Utility maximizing rule and demand curve

-tells why p and q d are inversely related

market period

-time after change market price too short for producers to respond with increased Q supplied -farmer sells truck load tomatoes cause that's all he has (need another season to respond) -perishable so can not be withheld -supply fixed (perfectly inelastic because can't respond to price) -graph -not all supply curves perfectly inelastic immediately after p change , not perishable price increase, producers choose increase q supplied by drawing on inventories of stored goods (positive slope; if goods inexpensively stored may be no market period at all) -price change a lot supply doesn't change

long run

-time period long enough for firms adjust plant size and for firms to enter/leave -farmer in time gets more land -smaller price rise and larger output increase, response to increase demand

Utility maximizing rule

-to maximize satisfaction consumer will allocate money so that last money spent on product yields same amount of marginal utility from different goods -when balanced margins, consumer equilibrium so no need to change spending

why use percentages for formula

-use absolute changes, choice units influence impression of buyer responsiveness -use % correctly compare consumer responsiveness change in prices different products

complimentary good

-used together, so demanded jointly (computers and software, snowboard and lift tickets) -money complement increase, demand for related good decrease; money complement decrease, demand for other good increase

time (commodity)

-valuable economic commodity -earn wage by hour -why time is squandered in less developed countries but not USA -when take an hour off of work the OC is income didn't earn

proportion of income

-what % income paying for product -if small % Ed inelastic -if big % Ed elastic (gum increase by 10% less change in demand than if houses increase by 10%) -higher percentage more elastic it is

tax incidence

-who bears burden of tax -elasticity determines it -decrease quantity if increase tax because price increase and demand (therefore) decreases -if producer were able to get whole amount of tax from consumers, would produce same quantity because charging higher price (only possible totally inelastic graph) -if consumer bears burden, price increase while supply decrease demand and quantity -businesses pick up some of the cost which decrease supply curve and quantity -lose efficiency

Marginal utility and demand

-why demand curve for given product slopes downward -successive units of good decrease mu consumer only buy units if price falls -(comes to point where Taco Bell would have to pay u to eat a taco) -price must decrease for quantity demanded to increase -consumers behave in ways that make demand curves downsloping

producer surplus

-willing to sell at cheaper prices but happy because sell at eq or higher price -willing and able to sell orange juice cheaper but sell for more -difference between actual price producer receives and min acceptable price consumers would have to pay producers to make a unit of output available -min acceptable price= mc (has all costs of production, including pollution) (rent, wage, interest, profit needed to get resources) -producer's min acceptable price interpreted as OC of bidding resources away from production of other goods (lowest price where break even acceptable, increase/decrease acceptable price based on efficiency, different type and quantity resources used) -supply curve shows both MC curves and min prices of more producers -higher p, increase s, p surpasses MC and min acceptable price of more and more producers -individual producer surplus vertical distance from seller's respective min price on supply curve up to e -decrease price decrease surplus increase price increase surplus

independent goods cross elasticity

-zero or nonzero elasticity show if products related or independent -zero independent

Disequilibrium

Any price where quantity demanded is not equal to quantity supplied

Giffin good

As price increase so does quantity demanded as price decreases so does quantity demanded

Utility maximizing rule

Consumer maximizes utility when choose amounts of x and y so that marginal utility per dollar spent is equal for both goods

Tariff

Creates dead weight loss

Total utility

Cumulative from all units of something we consume -total number satisfaction

simple cases d p q s

D increase price increase quantity increase d decrease price decrease q decrease s increase price decrease q increase s decrease p increase q decrease

Scale income elasticity

E1 greater than one normal elastic (luxury) Less than 1 greater than 0 normal income elastic Less than 0 inferior

Protective tariff

Excise tax on foreign goods to make domestic market look better

Revenue tariff

Excise tax on goods not produced in domestic market

Constrained utility maximizer

For one good case constrained by prices and income a consumer stops consuming a good when price paid for next unit is equal to mb received

Marginal utility per dollar

Marginal utility divided by cost -compare mu of a/p a To mu b / pb -can now compare -level playing field -TU increases at a decreasing amount, reached peak or max then begins to decrease -MU can be zero or negative

Marginal utility

Number satisfaction from next unit -work with this one the most -extra satisfaction consumer realizes from from additional units of product -influence total utility

Finding tr

Price times quantity demanded

Transfer prices

Prices for the exchange of a good or service

Horizontal summation

Process of adding at each price the individual quantities demanded to find the market demand for a good

Total welfare

The sum of consumer surplus and producer surplus -free market equilibrium provided maximum combined gain to society

income effect

a lower price increase purchasing power of buyer's income, allow buyers to purchase more of a product then before -impact of change of product's product has on consumer's real income and demand -decrease price oranges increase real income , get more utility because dividing by less and can buy more -new products succeed by enhancing a consumers' total utility

marginal cost

amount pay to obtain next unit of something

diminishing marginal utility

any time period, buyer gets less satisfaction (benefit/utility) from each successive unit of product consumed; because marginal utility decrease, consumers buy more only if prices of units progressively decrease

substitution effect

at lower price buyers have incentive to substitute a more expensive product with a relatively less expensive product with fallen price is better deal than other products -decrease price chicken replace pork with it -impact change product's price has on relative expensiveness and then q d -based on the price product may buy more of it because more/less MU per dollar

change in supply

change in schedule and shift curve -increase supply shift right, decrease shift left cause change determinants

special case

decrease/increase of demand and supply change same amount cancel each other out, eq p not changed

given good

higher price more people want it

price

not determinant of demand but is only determinant of quantity demanded -to increase quantity selling without increasing demand, decrease price

utility

satisfaction or happiness we get out of something -marginal or total -want-satisfying power -utility does not equal usefulness -is subjective (changes person to person) -difficult to quantify (measure with utils or units of utility) -different people may use different scales, so if Andy says 100 but Noah says 1000 doesn't mean Noah likes the product more than Andy

all things equal

single variable economics

determinants of elasticity of supply

time (have to have resources, have product already made, need time to adjust to changes in demand) -market period, short run, long run)

profit

usually per unit

MU table

want to buy product with higher MU per dollar -may have negative MU cause think will gain MU when really losing -use mu/$ -don't factor in price twice don't buy A because cheaper -if the product is more expensive, it should have a larger MU than cheaper products

marginal benefit

what next unit you can obtain gives you