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.