UNIT 2 AP MIRCO ECON
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FlashcardsLaw of demand
price goes down, demand goes up
Law of supply
Direct relationships between price and quantity supplied
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36 Terms
Law of demand
price goes down, demand goes up
Law of supply
Direct relationships between price and quantity supplied
Substitution effect
decrease in sales for an item becasue there is a cheaper alternative
income effect
More income, buying more
law of diminishing marginal utility
doing something for the 5th time isnt going to be as good as doing it the first time
normal goods
more income, more buying
inferior goods
less income, more buying
consumer surplus
paying UNDER what you WOULD have paid for a good
producer surplus
selling a good for MORE than they could
production subcity
government giving money to producers to make more of sometihng
elastic demand
sensitive to a change in price
inelastic demand
insensitive to a change in price
marginal utility
how much MORE happiness youre getting from doing something again
CS before tax
ABCD
PS before tax
EFGH
Tax per unit
$4
CS (customer surplus) after tax
B
dead weight loss
DE
total tax revenue to government
ACHF
total spending by buyers
ACHFGI
net revenue to sellers
GI
Amount of tax buyers pay
AC
Amount of tax sellers pay
HF
income elasticity of demand
shows how sensitive a product is to a change in income
FORMULA for income elasticity of demand
% change in quantity/5 change in income
Utility maximizing rule
consumers should attempt to make their utility per dollar equal to the price of the good
cross price elasticity
shows how sensitive a product is to a change in price of another good
EQUATION cross price elasticity
% change in quantity of product B/ % change in price of product A
Price elasticity of supply
Shows how sensitive producersE are to a change in price
EQUATION price elasticiity of supply
% change in quantity/ % change in price
total revenue equation
price x quantity sold= TR
price effect
price up, each unit sold sells a higher price, which tends to raise revenue
Quantity effect
price up, fewer units are sold, tends to lower revenue
6 shifters of supply
price/availability, number of sellers, technology, government action, opportunity cost of alternative, expectation of future profit
shifters of demand
taste/preference, number of consumers, price of related goods, income, future expectations
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