eco 1 second test- review

eco 1 second test- review - Review for Second exam...

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Review for Second exam Important Definitions - know what we mean if we say: Elastic. Inelasatic. Unit elastic. Perfectly elastic. Perfectly inelastic. Cross price elasticity (complements and substitutes). Income elasticity. Elasticity of demand. Corporation. Sole proprietorship. Partnership. Tariff. Quota. Comparative advantage. Absolute advantage. Utility. Marginal utility. Diminishing marginal utility. Marginal utility per dollar(divide MU by price) Average product (AP)- divide total product by the number of the inputs (like workers). Marginal product (MP)- change in total product by adding one more input (like another worker). Economies of Scale, Diseconomies of Scale, Constant returns to scale Average cost (AC)- total cost divided by total product . Marginal cost (MC)- change in total cost by adding one more input (like another worker- in which case cost would increase by his wage) Perfect competition. Monopoly. Oligopoly. Monopolistic competition. Price taker. Price discrimination. Labor market Chapter 6 Understand elasticity: it’s the responsiveness of a dependent (like quantity) to a change in and independent (like price). It’s measured in percentages to take care of the units and is therefore not constant along a straight line. Price elasticity is negative (because Q goes down when P goes up) but we talk about it in absolute value. So when we say demand is elastic (elasticity is greater than 1) we mean absolute value. Remember the definitions of elastic, inelastic, and unit elastic are talking about percentage change in dependent over percentage change in independent and they are in absolute terms. Elastic means a greater than 1% change in the dependent for a 1% change in independent. Inelastic is a less than 1% change in the dependent for a 1% change in the independent. Unit Elastic is an exact 1% change in dependent for a 1% change in the independent. Cross-price elasticity- % change in quantity of one good for a 1% change in the price of another good that has some relationship to the first good. So if the goods are complements, the cross price elasticity will be negative, because increasing the price of one good will decrease the quantity demanded of the complement
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good. Think what happens to quantity demanded of jelly if price of peanut butter goes up. If they are substitutes, the cross price elasticity will be positive because raising the price of one good will cause people to want more of the other good. Think computers and printers. Remember the definitions of perfectly elastic and inelastic Income elasticity - what percentage more you demand of a good if your income increases. So, if it’s a normal good, the elasticity will be positive because you want more when your income goes up. If it’s an inferior good, the elasticity is negative because you want less if your income goes up.
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