Microeconomics

price of elasticity demand

%change in quantity demanded/%change in price

midpoint formula

(Q2-Q1)/[(Q2+Q1)/2] / (P2-P1)/[(P2+P1)/2]

rational rule

-If something is worth doing, keep doing it until your marginal benefits equal your marginal costs. -when the marginal benefit is greater than marginal cost we should take the action

What leads to a shift in the demand curve?

-a change in any component besides price -increase in demand (buy more at every price) *shift right -decrease in demand (buy less at every price) *shift left

movement along the supply curve

-a change in the price of a product (a movement along the supply curve) -a change in any other factor (a shift in the supply curve)

inelastic

-customers don't respond to a price change -price elasticity of demand is <1

elastic

-customers respond to a price change -price elasticity of demand is >1

complements

-goods that are used together (washer and dryer, coffee and creamer) -increase price of complement -> decrease demand for other good

substitute

-goods that serve as replacements for one another (coke vs. pepsi, cable vs. streaming) -increase price of substitute -> increase demand for other good

factors that shift supply curve

-input prices -technology -prices of related outputs -producer expectations -type and number of sellers

economic surplus

-measures how much a decision changes your well being -benefits - costs

shortage

-quantity demanded is greater than quantity supplied -tend to force prices up

surplus

-quantity demanded is less than quantity supplied -tend to force prices down

cross price elasticity of demand

-the effect of a change in price for good X and the quantity demanded of good Y -positive for substitute goods -negative for complementary goods

What is an individual demand curve?

A graph that plots the quantity of an item that an individual buyer plans to purchase at each price.

What happens to the production possibility frontier when a technique is discovered that allows more outputs to be produced with the same amount of inputs?

It expands outward

perfectly elastic

Qd responds so much that it drops to zero at the slightest price increase

Tina wants to purchase a new all-in-one air fryer. The air fryer is on sale right now for $250 and the marginal benefit Tina will receive from the air fryer is $275. Tina can also purchase accessories for the air fryer for $50 and receive a marginal benefit of $75. According to the _____, Tina should _____ and her marginal benefit would be $_____.

Rational Rule for Buyers; purchase the air fryer and the air fryer accessories; 350

rational rule for sellers

sell more of a good if price is greater than or equal to the marginal cost

supply

The amount of goods available

What causes a movement along the demand curve?

a change in the price but a change in price does not change demand

market equilibrium

a situation in which quantity demanded equals quantity supplied

opportunity cost

before making a choice consider the alternatives

normal good

buy more as income increases

rational rule for buyers

buy more of an item if its marginal benefit is greater than (or equal to) the price

To verify a movement of the demand curve, when market conditions other than price change, you consider whether there has been a:

shift of the demand curve

When analyzing demand, if other factors are not held constant, then the:

demand curve may shift

inferior good

demand decreases as income increases (kool-aid, city bus, taco bell)

Hiring another worker is NOT beneficial when the marginal benefit of hiring one more worker _____ the marginal cost, meaning that hiring another worker _____ economic surplus.

is less than; decreases

perfectly competitive market

many buyers and many sellers all producing identical products

The _____ principle says that decisions about quantities are BEST made incrementally.

marginal

A shift in the demand curve is a:

movement of the demand curve itself.

A change in _____ in a market demand curve causes a _____ the demand curve.

price; movement along

perfectly inelastic

quantity does not respond at all to changes in price (E=0)

how does the production possibilities frontier (PPF) show opportunity cost

shows all combinations of output that can be produced given the currently available resources

quantity supplied

the amount of a good that sellers are willing and able to sell at any price

When you confront a problem, which of the four economic principles should you consider second?

the cost-benefit principle

income elasticity of demand

the effect of a change in consumer income of quantity demanded

marginal benefit

the extra benefit from one extra unit

marginal cost

the extra cost of one extra unit

Which of these factors may shift a market demand curve, but not individual demand curves?

the number and type of buyers

Your demand for any good will increase if:

the price of its substitutes rises

individual supply

the quantity a business plans to sell at each price

market demand curve

the sum of all the individual demand curves within a market

law of demand

the tendency for quantity demanded to be higher when the price is lower, holding other things constant

law of supply

the tendency for quantity supplied to be higher when the price is higher, holding other things constant

market supply

the total amount of an item that producers in a market are planning to sell, at each price

market demand

the total quantity of an item that consumers in a market are planning to buy, at each price

marginal principle

think in terms of small changes (a little more or less of something)

The market demand curve is a graph plotting the _____ of an item demanded by _____, at each price.

total quantity; the entire market

individual demand

what you plan to buy at each price

cost benefit principle

when making a choice consider the costs and benefits

marginal principle

when you break down "how many" questions and just consider whether you should choose one or more

interdependence principle

when you consider how your best choice depends on other factors

cost-benefit principle

when you consider the full pros and cons of each choice

opportunity cost principle

when you decide whether to buy takeout for lunch or to make yourself a grilled cheese sandwich

In order to convert nonfinancial costs or benefits into their monetary equivalent, assess your:

willingness to pay

interdependence principle

your best choice depends on many factors; choices of others, changes in market, and expectations about the future