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
