MICRO UNIT ONE

Elasticity

measures how much Demand (or supply) will change in response to a change in price

Price Elasticity of Demand

percent change in quantity demanded/ percent change in price

elastic demand

quantity demanded responds a lot to change in price, relatively elastic PED > 1

inelastic demand

quantity demanded only responds a little bit to a change in price, relatively inelastic PED < 1

perfectly inelastic demand

quantity demanded does not change when price changes PED = 0

perfectly elastic demand

demand is dependent on price - Price changes = quantity demanded = ZERO

Unit Elastic

assumes a change in price will cause an equal proportional change in quantity demanded.

(PED)  = 1

Cross-Price Elasticity of Demand

Measures the effect of the change in one good’s price on the demand of the other good.

Income Elasticity of Demand

Measures how changes in our incomes affect the demand for a good.

total revenue

the total value of sales of a good or service

the production funciton

the relationship between the quantity of inputs a firm uses and the quantity of output it produces. 

Variable Input

an input whose quantity the firm can vary at any time

Fixed Input

an input whose quantity cannot be varied for a period of time.

Marginal Analysis

an examination of the additional benefits of an activity compared to the additional costs.

total product

total quantity of output produced

marginal product

additional output produced by 1 more variable output

Average Product

average quantity of output produced by 1 variable input

explicit costs

are costs that requires an outlay of money

implicit costs

are costs that do not involve an outlay of money, instead, it is measured by the value, in dollar terms, of the benefits that are foregone