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42 Cards in this Set
- Front
- Back
Elasticity |
Responsiveness in one dependent variable Y to changes in anotherindependent variable X , ceteris paribus. |
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Price elasticity of demand equiation |
%Change in Quantity Demanded ___________________________________ % Change in price |
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The elasticity of Eggs and Butter |
Eggs are Price Inelastic (No Close Sub)
Butter is Price Elastic (Close Sub) |
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Point Formula |
(% change in Qd) / (% change in P)= (ΔQd/Qd) / (ΔP/P)= (P / Qd) x (1/slope) |
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Arc Formula |
(% change in Qd) / (% change in P)= (ΔQd/average Qd) / (ΔP/average P)= (average P / average Qd) x (1/slope) |
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Responses to price changes >1 =1 <1 =∞ =0 |
>1 Elastic =1 Unit <1 Inelastic =∞ Perfectly Elastic =0 Perfectly Inelastic |
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Price elasticity of supply equation |
% change in quantity supplied ________________________________ % change in price |
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Income elasticity of demand equation |
% change in quantity demanded _________________________________ % change in income |
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A Normal Good is when |
Income increases demand increases. The demand shifts Right. |
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A Inferior Good is when |
Income increases Quantity Demanded decreases thus demand shifts left. |
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Cross Price elasticity formula |
% change in quantity demanded of a good _________________________________________ % change in price of a related good |
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What is Cross Price Elasticity of Demand |
Responsiveness of quantity demanded in one good to changes in the price of another related substitute (Positive) or complementary good (Negative), ceteris paribus |
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3 Fundamentals questions of Economics |
What goods or services will be produced? How to produce these goods? Who will receive these goods? |
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Opportunity Cost Give an example |
What you give up to get it or the value of the next best alternative i.e. a farmer wants to grow carrots his 'opportunity cost' is not growing potatoes |
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Positive Statements Normative Statements |
P/Claims that attempt to describe the world as it is N/Claims that attempt to prescribe how the world should be. |
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Absolute Advantage |
The ability to produce a good using fewer inputs than another producer |
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Comparative Advantage |
The ability to produce a goof at a lower opportunity cost than another producer |
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Market |
A group of buyers and sellers of a particular good or service |
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Law of Demand |
Holding everything else constant, Price of product falls, quantity demanded will increase. Vice Versa |
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Consumer Surplus |
The buyers willingness to pay minus what the buyer actually pays. |
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5 Most importan variable that shift demand are |
Prices of related goods (substitutes and compliments) Income (normal good Vs inferior good) Tastes- Population and demographics Expected future prices |
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Law of Supply |
Holding everything else constant, increase in the price of a product cause increases in the quantity supplied and vice versa |
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Producer Surplus |
Amount a seller is paid minus the sellers cost |
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4 Important Variable that shift supply are |
- Input prices - Technology - Expectations - Number of sellers |
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Equilibrium |
A situation in which demand and supply have been brought into balance |
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Surplus |
Quantity Supplied is greater than Quantity Demanded |
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Shortage |
Quantity Demand is greater than Quantity Supplied |
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Subsidy |
Payment from the government, to consumers or sellers, for each unit of good that is bought or sold. (negative Taxes) |
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What separates ones salary from another |
The supply and demand for their labour |
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What is Marginal Product |
The addition output from an imput |
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MPL Formula & VMPL Formula |
MPL = ΔQ/ΔL VMPL = MPL x P VMPL = MPL x P |
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What shifts Labour Demand? |
The Output price, Technological Change and Supply of other Factors (i.e. Capital) |
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Tariff |
A tax on imported good
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Why do governments intervene in markets |
Market is not economically efficient, equity, stabilising it or regulating laws |
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Excludable |
A person can be prevented from using it |
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Rivalry |
One persons use diminishes an others use |
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The four types of goods |
Private Club Common Public |
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Give an example of four types of goods |
Pure Public - National Defence Common Resource - Congested Road Club Good - Uncontested Private Beach Pure Private Good - Concert |
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Externality |
A persons Activity Effects the wellbeing of a bystander. Bystander does not pay or be compensated in effect |
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Example or positive and negative externality |
Positive - Beekeeper Negative - Pollution |
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Coase Theorem |
Private parties can bargain costlessly over the allocation of resources. |
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Government solutions to externalities |
Command & Control Policies and Market-based Instruments |