Economics Exam 2

Marginal product

Difference between two things

If a price cut increases total revenue, demand is

Elastic

If 20 percent increase in the price of a used car results in a 10 percent decrease in the quantity of used cars demanded, then the price elasticity of demand equals

0.5

A good with an income elasticity grater than one is

A normal good that is income elastic

A good with an income elasticity that is positive and less than 1 is

A normal good that is income inelastic

When the marginal product equals the average product, the

Average product is at its maximum

The price elasticity of demand for new cars is 1.2 hence, a 10 percent price increase will

Decrease the quantity of new cars demanded by 12 percent

If a price cut decreases total revenue, demand is

Inelastic

A good with an income elasticity that is negative is an

Inferior

Perfectly inelastic demand curve

Is a straight line (up and down)

Marginal benefit

Is the maximum amount a person is willing to pay for one more unit of a good. (Willingness to pay)

The price elasticity of demand is defined as the magnitude of the

Percentage change in quantity demanded divided by the percentage change in price

Unit elastic (1)

Percentage change in the quantity demanded

Elastic demand (greater than 1)

Percentage change in the quantity demanded exceeds the percentage change in price

If a price cut leaves total revenue unchanged, demand is

Unit elastic

The long run is a period of time in which

All factors of production are variable

Total surplus is defined as

Consumer surplus + Producer surplus

Inelastic demand (0-1)

Percentage change in the quantity demanded is less than the percentage change in price

The income elasticity of demand is

Positive for a normal good and negative for an inferior good

Perfectly elastic demand (infinite)

Quantity demanded changes by an indefinitely large percentage in response to a tiny price change

If Sam wants to increase her total revenue from her sales of flowers and she knows that the demand for flowers is price inelastic, she should

Raise her price because she knows that the percentage decrease in the quantity demanded will be smaller than the percentage increase in price

A period of time in which the quantity of at least one factor of production used by a firm is fixed is called the

Short run (labor and capitol)