Econ 2106 Test 1

What is the cross-price elasticity of demand for two goods that are unrelated?

0

How to calculate Price elasticity of demand

% change in quantity demanded / % change in price

State of Nature:

All natural forces that influence production

Tradeoff

An exchange- giving up one thing to get something else.

The cross elasticity of demand for a _________ is negative.

Complement

Market:

Enables buyers and sellers to get together and do buisness

Economic Coordination works because?

Firms, Market, Property Rights, and Money

_________ are physical objects satisfy human wants.

Goods

What determines the quality of your labor?

Human Capital

Principle of Increasing Opportunity Cost:

In economics, the law of increasing costs is a principle that states that once all factors of production (land, labor, capital) are at maximum output and efficiency, producing more will cost more than average.

Advances in tech _________ supply and shifts right on the supply curve

Increase

Elasticity can range from 0 to _____.

Infinity

What causes an increase in Opportunity cost?

Larger sacrifice of an alternative good caused by an increasingly greater production of another good in a firm or economy, where resources are already being fully and efficiently used.

When supply decreases it shifts ______.

Left (PRICE RISES AND QD DECREASES)

9. If the income elasticity of SUVs is greater than 1, the good is considered to be a _________ _______

Luxury Good

Total revenue

Price x Quantity

When supply increases it shifts ______.

Right ( PRICE FALLS AND QD INCREASES)

__________ are tasks performed for people such as auto-repair service and cell-phone service.

Services

Elasticity is not the same as ______.

Slope

The cross elasticity of demand for a _______ is positive.

Substitute

The closer the ________ for a good or service, the more elastic is the demand for the good or service.

Substitutes

marginal cost

The opportunity cost that arises from a one-unit increase in an activity. The marginal cost of something is what you must give up to get one additional unit of it.

Perfectly Inelastic

The quantity demanded is the same at all prices

property rights:

The rights of an individual to own, use, rent, invest in, buy, and sell property.

allocative efficiency

When you can't make a product by giving up a different product.

production possibilities frontier(PPF)

a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology

income elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income

Technological change

a new or better way of making things

Substitute in production

another good that can be produced using the same resources as the good you're already making

At prices ______ the mid-point of a linear demand curve, demand is inelastic.

below

Rational Choice

compares costs, benefits, and achieves the greatest benefit over cost for the person making the choice

Technology creates new products and ___________ the price of producing existing products

decreases

When demand decreases

demand curve shifts leftward ( at OG price there is now a surplus/ PRICE FALLS AND QS DECREASES ALONG THE SUPPLY CURVE)

When demand increases

demand curve shifts right (at OG price there is now a shortage/PRICE RISES AND THE QS INCREASES ALONG THE SUPPLY CURVE)

Demand curves slope ________

down

If demand is _________, a 1% price cut increases the quantity sold by >1%, and total revenue __________.

elastic/ increases

The economic model is tested by comparing its prediction vs_____.

facts

If the supply of Good B is perfectly elastic and price falls the quantity supplied will:

fall to zero

The supply of a good increases if the price of a substitute in production ______.

falls

3. The more substitutes that exist for a particular product, the_________ the price elasticity of demand.

greater

The easier it is to substitute among the resources used to produce a good or service, the _______ is its elasticity of supply.

greater

Complementary goods are consumed together and therefore ________ when the price of one or the other changes.

impacted

The greater the proportion of ________ consumers spend on a good, the larger is the elasticity of demand for that good.

income

Consumers are much more likely to switch consumption when the price __________ if there is another product that can be rapidly substituted.

increases

15. A perfectly inelastic supply curve:

indicates the quantity supplied does not respond to a change in price

• The more vertical the demand curve the more __________ the good.

inelastic

Demand can be:

inelastic unit elastic elastic

Necessities, such as food or housing, generally have _______ ________.

inelastic demand

capital earns _____

interest

Scarcity

limited resources and unlimited wants

Long run supply is...

most elastic

Inelastic demand is?

percentage change in price results in a smaller percentage change in quantity demanded

Unit Elastic Demand is?

percentage change in price results in a smaller percentage change in quantity demanded

entrepreneurship earns ____

profit

Shortage

quantity demanded exceeds quantity supplied

Fair Shares

refers to the fairness of the distribution of income, wealth, and opportunity.

land earns ____

rent

When the price changes, total revenue also changes, but a rise in price doesn't always increase total ________.

revenue

The supply of a good increases if the price of a complement in production ______.

rises

Short run supply is...

somewhat elastic

normative statement

statement which describes how the world should be (can't be tested as it's an opinion)

positive statement

statement which describes the world as it is (can be tested via fact check)

comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

social interest

the choices that are best for society as a whole

If % change in Q < % change in P

the price elasticity of demand is less than 1 and the good has inelastic demand.

equilibrium quantity

the quantity bought and sold at the equilibrium price

At the mid-point of a linear demand curve, demand is ______ ______.

unit elastic

If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25 percent, the price elasticity of demand is:

-1.25

The elasticity of demand for a good depends on:

-The closeness of substitutes-most important of the three -The proportion of income spent on the good -The time elapsed since a price change

Supply Curve:

A curve that shows the relationship between the price of a product and the quantity of the product supplied.

Self interest

Make a choice you think is best for you

Elastic Demand is?

Percentage change in price results in a larger percentage change in quantity demanded.

Economists avoid confusion over units in the computation of elasticity by using:

Percentage changes

11. The price elasticity of supply always has a:

Positive Value

Which two factors influence economic growth?

Technological Change, Capital Accumulation

Opportunity cost:

The HIGHEST valued use of your time for what you give up

marginal benefit

The benefit from pursuing an incremental increase in an activity

Surplus

The difference between quantity supplied and quantity demanded

Microeconomics

The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.

If demand is __________, a 1% price cut increases the quantity sold by 1%, and total revenue is ______.

UNIT ELASTIC/ UNCHANGED

Elasticity

a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants

total revenue test

a method of estimating the price elasticity of demand by observing the change in total revenue that results from a price change.

incentive

a positive or negative environmental stimulus that motivates someone to act on

Change of Supply

a shift of the supply curve, which changes the quantity supplied at any given price

Economic Model

a simplified version of reality used to analyze real-world economic situations ( only uses the information on the subject being tested and nothing else)

Equalibrium

a state in which opposing forces or influences are balanced.

midpoint method

a technique for calculating the percent change in which changes in a variable are compared with the average, or midpoint, of the starting and final values.

Economic growth

an increase in the standard of living

If a price cut increases total revenue, demand is _____.

elastic

• The more horizontal the demand curve the more _______ the good.

elastic

Luxuries, such as exotic vacations, generally have _______ _______.

elastic demand

If a price cut decreases total revenue, demand is ________.

inelastic

If demand is _________, a 1% price cut increases the quantity sold by <1%, and total revenues _________.

inelastic/ decreases

cross elasticity of demand

is a measure of the responsiveness of demand for a good to a change in the price of a substitute or a complement. FORMULA(Percentage change in quantity demanded DIVIDED by Percentage change in price of substitute or complement

7. Along a linear demand curve, the slope __________ while the price elasticity of demand __________.

is constant, changes from one point to another

Elasticity of supply

measures the responsiveness of the quantity supplied to a change in the price of a good, when all other influences on selling plans remain the same. FORMULA( %change in QS DIVIDED by % change in price)

When demand changes both _______ and ______ follow in the same direction

price/ quantity

Absolute advantage

the ability to produce a good using fewer inputs than another producer(if someone is more productive than another)

Quantity Supplied:

the amount of a good or service that a firm is willing and able to supply at a given price

Economic Science

the evaluation of positive statements about economics

equilibrium price

the price at which the quantity demanded equals the quantity supplied

If % change in Q > % change in P

the price elasticity of demand is greater than 1 and the good has elastic demand.

If the income elasticity of demand is ______ (negative),the good is an inferior good.

<0

If the income elasticity of demand______ but <1, demand is income inelastic and the good is normal good.

>0

If income elasticity of demand is _____, demand isincome elastic and the good is a normal good.

>1

Invisible Hand

A phrase coined by Adam Smith to describe the process that turns self-directed gain into social and economic benefits for all

At prices ______ the mid-point of a linear demand curve, demand is elastic.

above

Production efficiency

an economic level at which the economy can no longer produce additional amounts of a good without lowering the production level of another product

Firms:

an economic unit that hires factors of production and organizes them to produce and sell goods and services

capital accumulation

the growth of capital resources, including human capital

Law of Supply:

the higher the price, the larger the quantity supplied and the lower the price of a good the smaller the quantity supplied

Supply:

the relationship between price and the quantity supplied of a certain good or service

Macroeconomics

the study of economy-wide phenomena, including inflation, unemployment, and economic growth

Economics

the study of how society manages its scarce resources and uses incentives to the maximum

2 goods are compliments in production if...

they must be produced together

The more ______ that passes after a price change, the greater is the elasticity of supply.

time

Economic Coordination

to reap the gains from trade, the choices of individuals must be coordinated

If a price cut leaves total revenue unchanged, demand is ______.

unit elastic

Supply curves slope _.

up

Efficiency

using resources in such a way as to maximize the production of goods and services

labor earns ____

wages

opportunity cost

whatever must be given up to obtain some item