eco 201 ukch3
Terms
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- law of demand
- increase in price causes decrease in quantity demanded
- change in quantity demanded
- movement along the demand curve; caused by a change of price and the given good
- change in demand
- shift in the entire demand; results from changes in tastes, income, personal taxes, prices of related goods (substitues or complements), expected price or quantity, number of buyers, or a change in planned consumption at all prices
- consumer surplus
- the difference between the max price consumers are willing to pay and the price they actually pay; it is the area below the demand curve but above the actual price paid
- elastic
- when a small price change causes a rather large change in the demand
- inelastic
- price change does not cause much change in the demand
- perfectly inelastic
- quantity demanded never changes regardless of the price
- factors that cause a shift of the demand curve
- 1) changes in consumer income. 2)changes in the number of consumers in the market. 3)changes in the price of a related good. 4)changes in expecations (future price). 5) demographic changes. 6) changes in consumer tastes and preferences.
- profit
- an excess of sales revenue relative to the opportunity cost of production
- loss
- a deficit of sales revenue relative to the oportunity cost of production.
- law of supply
- increase in price causes increase in quantity supplied
- supply schedule
- a curve showing the quantities of a good a seller is willing and able to sell at alternative prices at a given cost of production
- change in quantity supplied
- movement along the supply curve; caused by a change of price of the given good.
- change in supply
- shift in the entire supply curve; results from change in the cost of production, business taxed, expected price or quantity, change in the price of othe rproduced goods, change in the number of sellers, change in technology
- producer surplus
- the difference between the price suppliers actually receive and the minimum price they would be willing to accept; it is the area above the supply curve and below the actual sales price
- factors that cause a shift of the supply curve
- 1) changes in resource prices. 2)changes in technoloy. 3)elements of nature and political disruptions.4)chnges in taxes.
- market equilibrium
- a state in which the conflicting forces of supply and demand are in balance.
- properties of equilibrium
-
if price>price equilibrium, surplus. if price
- price ceiling
- a legally established max price sellers can charge for a good or resource
- price floor
- a legally established minimum price buyers must pay for a good or resource
- black market
- a market that operates outside the legal system where either illegal goods are sold or legal goods are sold at illegal prices
- average tax rate (ATR)
- tax liability/taxable income
- marginal tax rate (MTR)
- the additional tax liability a person faces divided by his or her additional taxable income.
- progressive tax
- a tax in which the ATR rises with income
- proportional tax
- a tax in which the average tax rate is the same at all income levels
- regressive tax
- a tax in which the average tax rate falls with income
- Laffer Curve
- a curve illustrating the relationship between the tax rate and tax revenues
- subsidy
- a payment the government makes to either the buyer or seller, usually on a per unit basis, when a good or service is purchased or sold
- elasticity formula
- the absolute value of percent change in quantity demanded plus percent change in price
- midpoints formula
- Q2-Q1/Q2+Q1=P2+P1/P2-P1
- types of elasticity
- if elasticity>1, elastic. if elasticity<1, inelastic. if elasticity=1, perfectly inelastic
- straight line demand curves
- elastic at prices above the midpoint and inelastic at prices below it. comparing two curves on the same graph, the flatter curve is more elastic at every price.
- vertical demand curves
- perfectly inelastic
- horizontal demand curves
- perfectly elastic
- tax burden
- if SC is more elastic than the demand curve, consumers carry more of the tax burden. if the DC is more elastic than SC, supplies carry more of the tax burden. if SC/DC is perfectly elastic, consumers/suppliers carry ALL of tax burden. if SC/DC is perfectly inelastic, suppliers carry ALL of tax burden