Economics Lecture: Elasticity, Utility, and Production

Flashcards created from lecture notes covering the topics of elasticity, utility, and production in economics.

Elasticity

A unit-free measure of how one variable responds to changes in another, allowing comparison across different markets and currencies.

Price Elasticity of Demand

Measures the responsiveness of quantity demanded to a change in the price of a good.

Formula for Price Elasticity of Demand

E = rac{AQ}{ ext{%AP}}, which calculates the percentage change in quantity demanded resulting from a 1% increase in price.

The Midpoint Method

A method to ensure elasticity is the same regardless of whether the price is increasing or decreasing.

Cross-Price Elasticity of Demand

If > 0, goods are substitutes; if < 0, they are complements.

Income Elasticity of Demand

If > 0, the good is normal; if < 0, it is inferior. Normal goods with E > 1 are luxuries; E < 1 are necessities.

Marginal Utility

The enjoyment or satisfaction received from consuming goods or services, measured in utils.

Law of Diminishing Marginal Utility

Consumers experience diminishing additional satisfaction as they consume more of a good during a given period.

Utility Maximization (Equimarginal Principle)

Consumers maximize utility by choosing a combination of goods where the ratio of marginal utility to price is equal across all items.

Short Run

A period where at least one input is fixed.

Long Run

A period where all inputs are variable.

Marginal Product of Labor (MPL)

The additional output produced by hiring one more worker.

Fixed Cost (FC)

Costs that remain constant as output changes.

Variable Cost (VC)

Costs that change as output changes.

Marginal Cost (MC)

The change in total cost from producing one more unit.

Economies of Scale

Long-run average cost decreases as output increases.

Diseconomies of Scale

Long-run average cost rises as output increases.