BEC3 - Microeconomics
Terms
undefined, object
copy deck
- What determines the price of a good or service?
- Demand and supply.
- What causes a demand curve to shift?
- When demand variables other than price change (price of other goods and services, price of complement products, consumer tastes, size of market, boycott).
- What is the price elasticity of demand?
- It measures that sensitivity of demand to a change in the product's price.
- What does the result of the price elasticity of demand equation indicate?
- If great than 1, demand is elastic; if less than 1, demand is inelastic; if 0, demand is unitary.
- What is the difference between elastic, inelastic, and unitary demand?
- Elastic demand is sensive to price changes, inelastic demand is not sensitive to price changes, and unitary demand is not sensitive or insensitive to price changes.
- What is income elasticity of demand?
- It measures the change in quantity demanded of a product given a change in consumer income.
- What is the difference between normal goods and inferior goods?
- The demand for normal goods goes up as income increases, and the demand for inferior goods goes down as income increases.
- What is the cross-elasticity of demand?
- It measures the change in demand for a good when the price of a related or competing product is changed.
- What is the difference between a substitute product and a complementary product.
- With a substitute, demand for the product goes up with an increase in the price of the other product; with a complement, demand for the product goes down.
- What is the law of diminishing utility?
- As a consumer obtains more of a product, the marginal utility from obtaining an additional unit of the product decreases.
- What is the consumption function?
- The relationship between changes in personal disposable income and consumption.
- What does the slope of the consumption function measure?
- The consumer's marginal propensity to consume - the percentage of an additional dollar in income that the consumer spends.
- How can the marginal propensity to save be determined using the consumption function?
- One minus the marginal propensity to consume.
- What does a supply curve show?
- The amount of a good or service that would be supplied at various prices?
- What cause a supply curve shift?
- When supply variables other than price change (government subsidies, government price controls, prices of other goods, or price expectations).
- What is the elasticity of supply?
- The percentage change in quantity supplied of a product when the price changes.
- When does market equilibrium occur?
- At the intersection of the demand and supply curve where all goods supplied will be sold.
- What are the two ways in which government intervention can alter market equilibrium?
- A price ceiling or a price floor.
- What is the effect of a price ceiling?
- Too few goods will be produced causing market shortages.
- What is the effect of a price floor?
- Too many goods will be produced causing overproduction.
- Are production costs fixed or variable?
- They are both fixed and variable in the short run, but all costs are variable in the long run because additional plant capacity can be added.
- What are the possible outcomes of an increase in productive capacity?
- Constant returns to scale, increasing returns to scale, and decreasing returns to scale.
- When do firms stop producing a product in a competitive market?
- Until marginal revenue is equal to marginal cost.