AP Econ Unit 2

Measures the responsiveness of the quantity supplied to changes in price of other related goods

Price elasticity of supply

Consider the market for mangos. Suppose researchers discover that eating mangos generates large health benefits. Which of the following statements is true? Ths discovery will

cause the demand for mangos to shift to the right

When no individual would be better off doing something different

equilibrium

a minimum wage that is higher than the market equlibrium wage will have what effect on the wage

increase decrease

research and development result in the discovery of a new technology for electricity generation. Holding everything else constant, this discovery will

increase the supply of electricity

an effective price floor will have what effect on the prices of the product and the quantity sold

increase, decrease

which of the following statements is true of a quota

it places a wedge between the qty demanded and qty supplied

wedge

the price paid by buyers ends up being higher than that received by sellers

1. A shift of a demand curve to the right would occur for a normal good if:

there is an increase in the number of consumers of the good

if the price goes up and the total revenue stayse the same...

unit elastic

How to calculate price elasticity of supply

(%change in QTY supplied/ %Change in price)

How do you calculate cross price elasticity of demand

(Change in Qa demanded / % change in price of B)

How do you calculate price elasticity

(Change in Qa demanded/%change in price of B)

if a 10% increase in income leads to a 20% decrease in the quantity of a good purchased, which of the following is true. Thenincome elasticity of demand for the good is

-2

Shows how marginal utility depends on the quantity of a good or service consumed

Marginal utility curve

Change in qty supplied of a good that is the result of change in that good's price

Movement along the supply curve

What causes inelastic curve

Necessity few/no subs small portion of income short time horizon broad market (oil)

Quota rent

difference between demand and supply price at the quota account

What determines a complemetary good and a substitute good from the Cross P E of D

negative is complementary pos is substitute

Suppose a price floor of $40 is implemented in this market. This results in

no effect in this market

if price ceiling is high then it is

nonbinding

When the income elasticity of demand is positive the good is? Bc

normal the quantity increases when the income increases

What is the formula for total revenue

p times q

identical goods and numerous suppliers and demanders

perfect competition

4. According to the substitution effect, a decrease in the price of a product leads to an increase in the quantity of the product demanded because buyers:

purchase more of the now relatively less expensive good.

Consider a supply curve. When the price of the good increases, this results in a movement along the supply curve resultingin a greater

quantity supplied

Consumers in Mayville consider housee and aprtments to be substitutes. There is an increase in price of houses in mayville at the same itme that three new apartment buildings are opened. in the market for apartments in mayville the equilibrium

quantity will rise realitive to its level before these 2 events

2. When price goes down, the quantity demanded goes up. Price elasticity measures how:

responsive the quantity change is in relation to the price change.

a quota limit imposed on a market

restricts the amt of the good available

what on demand curve which changes the quantity demanded at any given price

shift/change in demand

Assume that ham and turkey are subs if the price of ham decreases then the demand for turkey

shifts to the left

Calculate income elasticity of demand

% change in quantity of a good demanded when a consumer's income changes/ % change in income

9. Gas prices recently increased by 25%. In response, purchases of gasoline decreased by 5%. Based on this data, the price elasticity of demand for gas is:

.2

How to measure benefits, like buyers of used text books

Consumer Surplus

Between two goods measures the effect of the change in one goods price on the quantity demanded of the other good.

Cross price elasticity of demand

Reductions in combine consumer and producer surplus by an underallocation or overallocation of resources to the production of a good or service or the lost gain associated with transactions that do not occure due to market intervention

Dead weight loss

A higher price of a good/service, all other things equal, leads people to demand a smaller quantity of that good/service

Law of demand

Other things being equal, the price and qty supplied of a good are relatively related

Law of supply

of the benefits sellers recive from being able to sell a good

Producer surplus

What shifts the supply curve

Qty increases at any given price Changes in input changes in price of related goods/services change in tech change in expectations change in # producers quotas/govt policy

Upper limit on the quantity of some good that can be bought/sold

Quantity Control/Quota

the actual amount of a good or service producers are willing ot sell at some specific price

Quantity Supplied

is the actual amount of a good/service consumers are willing and able to buy at some specific price

Quantity demanded

Shows how much of a good/service producers will supply at different prices

Supply Schedule

Qty supplied exceeds the quantity demanded price is above equilibrium

Surplus

7. Producer surplus is represented by the area ________ the supply curve and ________ the price.

above; below

Whats bad abt quotas

addressing a temporary problem comes hard ot remove later bc nefeficiaries dont want them abolished

suppose a price ceiling of $40 is implemented in this market this results in

an exess demand of 100 units

when the price has moved to a level where the quantity of a good demanded = qty of a good supplied

competitive market

Consider two goods: good X and good Y. Holding everything else constant, the price of good Y increases and the demand for good X decreases. Good X and good Y are deinitley

complements

8. Along the supply curve for brownies, a decrease in the price of brownies will:

decrease producer surplus

Consider the supply curve for cotton shirts. An increase in the price of cotton will:

decrease the supply of cotton shirts.

Shows how much of a good/service consumers will be willing and able to buy at differnt prices

demand schedule

in an equilibrium in a competitive market for a good, price has adjusted so that the quantity

demanded is equal to the quantity supplied at that price

if the price goes up and total revenue goes down...

elastic

if total revenue increases when a firm decreases that is

elastic

if the price of good A decreases by 50% and the quantity of good A demanded increases by 25% which of the following is true

elasticity is 1/2 and the curve is inelastic

ceteris paribus, the tax revenue generated from a tax will be generated when the tax is imposed on a good hat

has an inelastic demand

When the Income elasticity of demand is greater than 1

income elastic

The net gain to an individual from the purchase of a good. It is equal to the difference between the buyer's willingness to pay and the price paid

individual consumer surplus

if the price goes up and the total revenue goes up...

inelastic

When the Income elasticity of demand is negative the good is? bc

interior Quantity demanded at any price decreases as the income increases

adam smith's description of how a free market economy works by each person (producer & consumer) pursue his or her own self-interest will the society as a whole better off

invisible hand

each successive unit of a good or service consumed adds less to total utility than the previous one does

law of diminishing utility

an effect quantity control

limits the amount of the good or service available

What causes an elastic curve

luxury many subs large income long time horizon narrowly defined market (bp)

Competitive markets are characterized as having

many buyers and many seller

The change in total utility generated by consuming one additional unit of that good or service

marginal utility

5. For the vast majority of goods, demand curves slope downward because:

marginal utility decreases as quantity of consumption increases

What causes a shift on the demand/supply curve

market equilibrium quantity Change in population change in popularity complements/subs? Sub effect income effect?

is a change in the quantity demanded of a good that is the result of a change in that goods price

movement along the demand curve

a max price sellers are allowed to charge for a good/service

price ceiling

Minimum price buyers are required to pay for a good or service

price floor

qty demanded exeeds quantity supplied price is below equilibrium

shortage

if the cross-price elasticity of demand between two goods is +2 it means that the two goods are

subs

Sue goes to the store to purchase a bottle of shampoo. When she gets to the store, she discovers that her brand of shampoo is on sale for $4 a bottle. According to law of demand, we can expect that

sue will pikely purchase more than one bottle of shampoo

5. If the price elasticity of supply is greater than 1, then:

supply is price-elastic.

The sawmilll industry expects lumber prices to rise next year due to gowing demand for the construction of new homes. Holding everything constant, this expectation will shift

supply of lumber to left

if price floor is above equilibrium

surplus

3. If suppliers expect prices to rise next year for their product, then one would expect:

that this will shift the supply curve for the product to the left this year.