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UNIT 2 AP MIRCO ECON
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Mr witt
Microeconomics
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36 Terms
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1
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Law of demand
price goes down, demand goes up
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Law of supply
Direct relationships between price and quantity supplied
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Substitution effect
decrease in sales for an item becasue there is a cheaper alternative
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income effect
More income, buying more
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law of diminishing marginal utility
doing something for the 5th time isnt going to be as good as doing it the first time
6
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normal goods
more income, more buying
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inferior goods
less income, more buying
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consumer surplus
paying UNDER what you WOULD have paid for a good
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producer surplus
selling a good for MORE than they could
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production subcity
government giving money to producers to make more of sometihng
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elastic demand
sensitive to a change in price
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inelastic demand
insensitive to a change in price
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marginal utility
how much MORE happiness youre getting from doing something again
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CS before tax
ABCD
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PS before tax
EFGH
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Tax per unit
$4
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CS (customer surplus) after tax
B
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dead weight loss
DE
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total tax revenue to government
ACHF
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total spending by buyers
ACHFGI
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net revenue to sellers
GI
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Amount of tax buyers pay
AC
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Amount of tax sellers pay
HF
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income elasticity of demand
shows how sensitive a product is to a change in income
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FORMULA for income elasticity of demand
% change in quantity/5 change in income
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Utility maximizing rule
consumers should attempt to make their utility per dollar equal to the price of the good
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cross price elasticity
shows how sensitive a product is to a change in price of another good
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EQUATION cross price elasticity
% change in quantity of product B/ % change in price of product A
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Price elasticity of supply
Shows how sensitive producersE are to a change in price
30
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EQUATION price elasticiity of supply
% change in quantity/ % change in price
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total revenue equation
price x quantity sold= TR
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price effect
price up, each unit sold sells a higher price, which tends to raise revenue
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Quantity effect
price up, fewer units are sold, tends to lower revenue
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6 shifters of supply
price/availability, number of sellers, technology, government action, opportunity cost of alternative, expectation of future profit
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shifters of demand
taste/preference, number of consumers, price of related goods, income, future expectations
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