Econ 1
Ceteris Paribus
"other things being equal"
Relatively elastic
Flatter curve
It could be either positive or negative depending on the good. It could be negative if the income increases so you buy less quantity demand of a good, or it could be positive if you buy more quantity demand of a good (depends on if it's normal or inferior goods)
Is the answer for Income elasticity positive or negative? Why?
Always negative because there is an inverse relationship between quantity demanded and price
Is the answer for demand elasticity positive or negative and why?
Neg. Incentives
Jail, fines...
Scarcity
Limited nature of society's resources
Price elasticity of supply
Measure of the responsiveness of the quantity supplied to a change in price
Cross-Price elasticity
Measures the responsiveness of the quantity demanded of one good to a change in the price of another good
Unintended Consequence
Social Safety net
Relatively inelastic
Steeper curve
Pos. Incentives
Tax refund, pay raise...
Highly elastic to highly inelastic
The elasticity on a demand curve moves from _____ to _____ as it goes from top to bottom
surplus according to equilibrium
occurs at any price above equilibrium; price will fall toward equilibrium
shortage according to equilibrium
occurs at any price below equilibrium; price will rise toward equilibrium
Inefficient points (PPF)
points inside the PPF
Unattainable points (PPF)
points outside the PPF
Shifts in demand curve
shift to the left means less quantity demanded, shift to the right means more quantity demanded but doesn't have to do with PRICE
Opportunity cost in terms of PPF
slope of PPF is opp. cost
Marginal thinking
systematically evaluating a course of action
equilibrium price
the price that causes quantity supplied to equal quantity demanded
Comparative advantage
the situation in which an individual, business, or country can produce at a lower opportunity cost than competitors
The opportunity cost of buying a good is: -the sum of values of all the other goods you could have purchased. -the value of the next-best alternative you could have purchased. -irrelevant since you will purchase your highest-valued good. -the average of values of all the other goods you could have purchased.
the value of the next-best alternative you could have purchased.
The governor decides to increase funding for education. However, this will mean decreasing funding for infrastructure. This situation illustrates: -trade-offs. -comparative advantage. -incentives. -markets.
trade-offs.
Inferior good
-Good in which we buy less of when we get more income -Inverse relationship between income and demand
Normal good
-Good in which we buy more of when we get more income -Direct relationship between income and demand
Necessities
A type of normal good that we purchase a little more when income rises
Luxuries
A type of normal good that we purchase a lot of when income rises
Positive statement
A claim that can be tested; ex: more taxes on the rich will increase tax revenues
Very elastic
Brands are __________ because they have substitutes
If it's a substitute, it's negative; if it's a complement it's positive
Cross-price elasticity answer rule
E = %changeQA ---------------- %changeQB
Cross-price elasticity formula
E = %changeQ ----------------- %changeP
Demand elasticity formula
E = %changeQ ---------------- %changeI
Elasticity Income formula
More elastic
Elasticity on goods with lots of substitutes
More inelastic
Elasticity on goods with no substitutes
More inelastic
Elasticity on less expensive items
More elastic
Elasticity on more expensive items
More elastic
Elasticity over long periods of time become
Absolute advantage
One person can preform all tasks more effectively than the other
Slope
Opportunity cost is ______ on PPF
E = %changeQsupplied ------------------------- %changeP
Price elasticity of supply formula
Demand is inelastic
Quantity demanded changes a small amount as the result of the price change
Demand is elastic
Quantity demanded changes significantly as the result of the price change
Elasticity
Responsiveness of buyers and sellers to changes in market conditions
Income elasticity
Responsiveness of the change in quantity purchased as a result of a change in income
Absolute Advantage
When one person can perform each task more effectively than the other person
It will always be positive because there is a direct positive relationship between the quantity supplied and price
Will the answer to supply elasticity formula be positive or negative? Why?
Movement along supply curve
caused by a change in PRICE
Shifts in supply curve
factors that contribute to an increase or decrease in supply
Movement along demand curve
has to do with price, move to the right= price decrease, movement to the left=price increase
Opportunity Cost
highest valued alternative that must be sacrificed in order to get something else
equilibrium point
intersection on graph
