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Terms Definitions
Revenue Price times quantity
The market rewards ______ SCARCITY
-many firms
- no restrictions on entry or exit
-established firms have no advantage over new firms
-sellers and buyers are well informed about prices
-firms tend to be small
- D=P=MR
Perfect Competition
profit Signal that firms are "doing good"
Quota Regulated quantity under a quantity control.
-45degree line represents equality
- Furthor away the curve is, less equal
Lorenz Curve
Basic premise of economics people are rationalmarginal benefit>marginal cost
An increase in supply shifts the supply curve which way? RIGHT
-Anti Labor
-outlawed "closed shop" but not "union shop"
Taft-Harley Act of 1947
-only one seller
-MR lies below D line
-never produces in inelastic range
where is the equilibruim Equilibrium is where quantity demanded and quantity supplied are equal.
Labor Equilibrium In equilibrium, the quantity of labor demanded equals the quantity of labor supplied.
A decrease in demand for a product causes the demand curve to shift left or right? LEFT
Price Elasticity indicates what? Price elasticity indicates how responsive the quantity demanded is to the price.
Things that do NOT go through the market Externalities
least-cost combination of resources The optimal combination of resources is achieved through cost-minimization and profit-maximization.
What is the effect of a price ceiling that is ABOVE the equlibirum?
How to calculate total consumer surplus? (1/2 Base) x Height
Puts a lower limit or minimum values on profits
-designed to hold prices up
(above equilibrium)
Price Floor
profit-maximizing combination of resources In competitive markets, a firm will realize the most profit maximizing combination when each input is employed up to the point at which its price equals its marginal revenue product:
voting with dollars In our free market economy we let price act as the rationing device. The people who place the highest value on the good will be the most willing to pay.
Shortage or Excess Demand If the the quantity demanded EXCEEDS the quantity supplied
an asset that has no resale value, no used market
-so it has no opportunity cost
Sunk Cost
Identify the basic economic questions 1. What and how much will be produced?2. How will it be produced?3. For whom will it be produced?
Income Elasticity of Demand The ratio of the percent change in quantity demanded to the percent change in income.
-Tells us how responsive the quantity demanded is to INCOME.
WILLINGNESS TO BUY The maximum price at which he or she would buy a good
The Formula for Price Elasticity of Demand % Change in Quantity Demanded/
% Change in Price
Distinguish between a change in quantity demanded and a change in demand A change in quantity demanded is a movement along the demand curve. Usually happens when price changes.A change in demand is a shift to a whole new demand curve.Other determinants are:Income – normal goods - inferior goods Tastes or preferences Prices of related goods - Substitutes can satisfy a similar want or need - Complements are used together Consumer expectations with respect to future prices Population Changes in demand - shifts to the left or rightChanges in quantity demanded – movement up & down the demand curve
What is the effect of a leftward shift in the demand curve? Equilibrium price and equilibrium quantity both fall.
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