micro test 2
A(n) _____ good is a good for which the amount consumed declines as a consumer's income increases.
inferior
income elasticity is less than 1, then it is a __________ good
inferior
A good with an income elasticity that is negative is said to be a(n):
inferior good
Marginal utility
is the additional satisfaction a consumer obtains from consuming one more unit of a good or service
Total utility
is the total satisfaction a person obtains from consuming a specific amount of goods
income elasticity is greater than 1, then it is a ___________ good
luxury
elasticity
measure of the relative responsiveness of one variable to a change in another variable in percentage terms
Cross elasticity of demand
measures how responsive demand for one good is to a change in the price of another good
price elasticity of demand
measures how sensitive consumers are to changes in price.
elasticity of supply
measures the extent to which businesses react to price changes, and its formula is virtually identical to that of demand:
if elasticity is between 0-1, the it is a __________ good
normal
A _____________ is one for which the quantity demanded increases as income increases.
normal good
implicit cost
opportunity costs associated with firms use of resources it owns
if one person consumes a public good:
other cannot be excluded from enjoying it
ES formula
% Change in Quantity Supplied / % Change in Price
two factors to the budget line:
1.) change in the price of a good 2.) change in budget
Marginal utility per dollar spent:
MU / P
long run
a time period long enough for firms to alter their plant capacity or for firms to enter or leave the industry.
Unitary elastic demand
The percentage change in quantity demanded is just equal to the percentage change in price. This results in the absolute value of the price elasticity of demand to be equal to 1.
statutory influence
the entity responsible for payment of the tax, this burden falls on the producer
lump sum tax
a fixed amount of tax regardless of income (type or regressive tax)
regressive tax
a tax in which the tax rate falls as the taxable amount rises (FICA)
flat tax
a tax in which the tax rate is the same at all levels (medicare)
progressive tax
a tax that rises as the taxable amount rises (income tax, property tax)
Short run
a time period in which plant capacity is fixed and the number of firms in an industry does not change.
law of diminishing marginal utility
as consumption of a specific good increases, the increase in total satisfaction will decline
If a pharmaceutical company knows that one of its products has a dangerous side effect but does not disclose that to its customers, then the market for that product is likely to fail due to:
asymmetric information
Suppose the equilibrium price for a gallon of milk is $2.50, but due to government price supports, the minimum legal price is $2.75 per gallon. This price floor:
causes a surplus of milk in the market
sunk cost:
cost that has been paid and cannot be recovered
Total revenue _______________ when price rises on an ________________ or is lowered on an inelastic good.
decreases, elastic good
explicit costs
direct payment made to others in the course of running a business, such as wage, rent and materials
the most substitutes, the more:
elastic
accountants only use __________ costs
explicit
Utility
hypothetical measure of consumer satisfaction.
If the price elasticity of demand for a good is inelastic and the price of the good rises, the revenue of the firm selling the good will:
increase
Total revenue _______________ when price rises on an ___________________ or is lowered on an elastic good
increases, inelastic good
The steeper the curve, the more _________ it is going to be
inelastic
if a good is not available, then the good is:
inelastic
Elasticity of demand equation
percent change in Q demanded / percent change in price
normal economic profit
point when total revenue equals total cost
A firm increases its price for a good and total revenues increase. From this, we can conclude that its demand:
price inelastic
sunk cost fallacy
situations where people make decisions based off how much was already spent instead of how decisions might affect current well being
Influence of taxation
the division of the economic burden of taxation between producers and consumers
Behavioral Economics
the study of how human psychology affects economic decision making and individuals
inelastic
this results in the absolute value of the price elasticity of demand to be less than 1
accounting profit
total revenue - explicit costs
economic profit
total revenue - total costs
As a person consumes more of a good or service, the person's _____ will increase. At the same time, this person's _________ will decrease with each additional unit.
total utility, marginal utility
Total revenue is maximized at the point where demand is ______ __________________
unitary elastic
over confidence bias
when a person has more confidence in their abilities than actually exist
framing bias
when individuals are steered into making one decision over another
elastic
when the absolute value of the computed price elasticity of demand is greater than 1
