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46 Terms
1
What is the formula for elasticity?
% change in quantity demanded / % change in price
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2
what type of elasticity is ED = 1?
unitary elastic
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3
what type of elasticity is ED > 1?
elastic
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4
what type of elasticity is ED < 1?
inelastic
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5
What is the formula for total revenue?
Price x Quantity
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6
Formula for income elasticity of demand
% change in quantity demanded / % change in income
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7
What is the formula for cross elasticity of demand?
% change in quantity demanded of product X / % change in price of product Y
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8
What does cross elasticity of demand measure?
The responsiveness of the quantity demanded of one good to a change in the price of another good.
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9
formula for price elasticity of supply
% change in quantity supplied / % change in price
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10
Formula for consumer equilibrium
MUx/Px=MUy/Py
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11
What is utility?
the want-satisfying power of a good or service
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12
What is marginal utility?
the benefit gained from consuming one additional unit of a good or service.
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13
What is the law of diminishing marginal utility?
Additional units provide less and less additional utility over a short time period.
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14
What is income effect?
a change in quantity demanded caused by a change in consumer income
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15
what is the substitution effect?
the change in quantity demanded because of the change in the price of the product relative to substitutes.
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16
What does LRAC stand for?
long run average cost curve
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17
Inputs are also known as
factors of production
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18
What is normal profit?
total revenue = total opportunity cost
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19
What are economies of scale?
A situation in which the long-run average cost curve declines as the firm increases output.
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20
What are constant returns to scale?
A situation in which the long-run average cost curve does not change as the firm increases output.
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21
What are diseconomies of scale?
A situation in which the long-run average cost curve rises as the firm increases output.
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22
Formula for economic profit
total revenue - explicit costs - implicit costs
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23
Formula for total cost
fixed cost + variable cost
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24
Formula for average cost
total cost/output
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25
What are explicit costs?
Explicit costs are also called out-of-pocket costs. Explicit costs involve payment of cash and include wages and salaries, office supplies, interest paid on loans, payments to vendors for raw materials, and so forth.
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26
What are implicit costs?
opportunity costs
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27
What is perfect competition?
many competitors; identical product
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28
Formula for profit maximization
MR = MC
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29
What is a price taker?
a buyer or seller who cannot affect the market price
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30
When is it time to shut down?
it is when the price is below minimum average variable cost(AVC)
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31
What are examples of fixed costs?
- rent
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- interest on loans
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- property insurance premiums
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- local and state property taxes
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- salaries
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- routine wear and tear on machines and other capital goods
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37
what are examples of variable costs?
raw materials and wages
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38
What are the three average cost curves?
1. Average fixed cost
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39
2. Average variable cost
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3. Average total cost
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41
what is average fixed cost?
total fixed cost/quantity
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42
what is AVC
average variable cost; TVC/Q
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43
what is average total cost?
total cost/quantity
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44
what is marginal cost?
change in total cost / change in quantity
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what is a fixed input?
an input whose quantity is fixed for a period and cannot be varied
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what is variable input?
an input whose quantity the firm can vary at any time
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