Study_Guide_2 - Study Guide 2, Economics 200, 1 SECTION I,...

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Study Guide 2, Economics 200, 1 SECTION I, CLASS MATERIAL Style: 25 Multiple Choice Questions. Subject: Class Notes 1B, 3B, 4B, 5B, 6B, 7B Points: 75 Points Total (3 Points Each) Hints: -Two questions come from CLASS LECTURE portion of Homework VII - XII -Two questions come from Warm-Up Slideshows Classes 1B-9B Topics from Class Notes : I. Elasticity : a. Define: i. Elasticity- sensitivity or responsiveness to changes in stimuli ii. 4 Types of Elasticity - 1)price elasticity of supply – change in quantity supplied over change in price 2)income elasticity of demand - change in quantity demand over change in income; good for normal goods, negative for inferior goods\ 3)cross elasticity of demand-change in quantity demand over change in price of a substitute or complement 4)price elasticity of demand-always positive because you take absolute value; change in quantity demanded over change in price b. Price Elasticity of Demand i. Determinants 1) Necessity vs. Luxury 2) # of Substitutes – many sub.=elastic; few sub.=inelastic 3) Fraction of Income – large fraction=elastic; small fraction=inelastic 4) Time Elapse – short-term =elastic; long-term=inelastic ii. Three Elasticity Cases Graphs Perfectly inelastic Perfectly elastic Straight Line Demand Curve Equations Relationship to Total Revenue
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Study Guide 2, Economics 200, 2 II. Law of Demand a. Define: -Individual Self-Interest - everyone looks out for themselves -Law of Demand – If price raises quantity demanded goes down -Income Effect – the higher your income the more you can buy -Substitution Effect – lots of substitutes make the price go down
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Study_Guide_2 - Study Guide 2, Economics 200, 1 SECTION I,...

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