Macro Eco – Flashcard
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inferior good
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A good for which, other things equal, an increase in income leads to a decrease in demand
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substitute goods
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Two goods are consumer substitutes if they provide essentially the same utility to consumers
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When two goods are substitutes, what occurs?
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Demand shifts right, P rises and Q rises
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elasticity/ When is price elastic?
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E>1. When the percentage change in quantity demanded is greater than the percentage change in price.
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inelastic
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Describes demand that is not very sensitive to a change in price. E<1
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total revenue
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the total amount of money a firm receives by selling goods or services, Price x Quantity
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competitive market
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A market in which there are many buyers and many sellers so that each has a negligible impact on the market price
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What is the impact of a cut in price when demand is inelastic?
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A decrease in total revenue.
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If you know the value for price elasticity of demand, then what can you compute?
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The effect of a price change on the quantity demanded.
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How is the responsiveness of the quantity demanded to a change in price measured?
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By dividing the percentage change in the quantity demanded of a product by the percentage change in the product's price.
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How do economists avoid confusion over units in the computation of elasticity?
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By using percentage changes rather than simple differences.
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When quantity demanded is completely unresponsive to price, what is the value of price elasticity of demand?
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Zero.
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If a supply curve is highly elastic, then a small increase in price generates
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a proportionally larger increase in quantity supplied.
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(? seen on quiz 2&3) In the apple market: Scientists discover that eating apples cures cancer. (what would the graph look like)
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Demand shifts right, P rises and Q rises
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(? seen on quiz 2&3) In the newspaper market: The number of newspaper buyers falls as more people get their news from the internet. (what happens to the graph?)
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Demand shifts left, P falls and Q falls
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normal good
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A good for which demand increases as income rises
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supply
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How much of a good or service a producer is willing and able to produce at different prices.
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demand
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Consumer willingness and ability to buy products
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producer surplus
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The difference between the lowest price a firm would have been willing to accept and the price it actually receives.
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consumer surplus
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The difference between the highest price a consumer is willing to pay and the price the consumer actually pays.
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A recent study found that an increase in the Federal tax on beer (and thus an increase in the price of beer) would reduce the demand for marijuana. We can conclude that
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beer and marijuana are complimentary goods.
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name of a legally determined minimum price that sellers may receive?
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A price floor.
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What is the name of a legally determined maximum price that sellers may charge?
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A price ceiling.
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market
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Economic decisions are made by individuals or the open market.
