Micro_Midterm_2

# Micro_Midterm_2 - Microeconomics Chapter 6 Elasticity...

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Microeconomics: Chapter 6 Elasticity- responsiveness by consumer(price cut/price sale)- developed by Alfred Marshall. Elastic- demand is elastic if a specific percentage change in price results in a larger percentage change in quantity demanded. Inelastic- if a specific percentage change in price produces a smaller percentage change in quantity demanded. ΔQ/Q/ΔP/P Perfectly Elastic- a price increase will cause quantity demanded to decline from an infinite amount to zero. Perfectly Inelastic- a price increase will result in no change in quantity demanded. Graph p. 108 Graph p. 109 America – elasticity for agriculture= .20 - .25(inelastic)

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Total Revenue- the total amount the seller receives from the sale of a product in a particular time period. TR= P x Q Elasticity is greater than 1 – demand is elastic- Quantity demanded changes by a larger percentage than price. Price increases- total rev decreases – Price decreases- total rev increases Elasticity is equal to 1 – demand is unitary- quantity demanded changes by the same percentage as does price. Price increases – total rev unchanged- Price decreases- total rev unchanged. Elasticity is less than 1- demand is inelastic- quantity demanded changes by a smaller percentage than does price. Price increases- total rev increases- Price decreases- total rev decreases. Microeconomics: Chapter 7 Utility- satisfying wants. Utility and usefulness are not the same thing. Utility is subjective Utility is difficult to quantify Consumer Behavior 1. rational behavior- most satisfaction of product 2. preference- goods and services 3. budget constraint- limited budget 4. prices- lower and more demand(vice versa) Total Utility- total amount of satisfactions or pleasure derived from consuming some specific quantity. Marginal Utility- extra amount of satisfaction from an additional unit. Units Total Utility Marginal Utility = ΔTU/ΔQ 1 10
2 18 8 3 24 6 4 28 4 5 30 2 6 30 0 7 28 -2 Graph- Certain point reach disutility. Diamond vs. Water – Measuring the value of excess amount Microeconomics: Chapter 8 Economic Costs- all payments that must be received by resource owners to ensure a continued supply of needed resources to a particular line of production. Explicit Costs- monetary payments (or cash expenditures) it makes to those who supply services and resources.

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Implicit Costs- opportunity costs of using its self-owned, self-employed resources. Payments for the use of self-owned and self-employed resources. Implicit cost = normal profit to entrepreneur. (salary to yourself) Pure Profit (Economic profit) – total revenue exceeds total costs – total cost (explicit and implicit) Normal Profit- the payment made by a firm to obtain and retain entrepreneurial ability Short-run: Firm’s plant capacity is fixed The firm can use it plant more/less intensively by adding or subtracting units of variable resources.
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