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# econ b251

question
price elasticity of demand formula
% change QD/% change P
question
elasticity of demand between 2 points formula
(Q2 - Q1)/average
question
elastic demand
Ep greater than 1
question
perfectly elastic demand
Ep equals infinity
question
unit elastic demand
Ep = 1
question
inelastic demand
Ep between 0 and 1
question
perfectly inelastic demand
Ep = 0
question
cross price elasticity of demand formula
% change QD of X/% change P of Y
question
substitutes CPEoD
positive (increase P of X = increase QD of Y)
question
complements CPEoD
negative (increase P of X = decrease QD of Y)
question
income elasticity of demand formula
% change QD/% change income
question
IEoD is positive
normal good
question
IEoD greater than 1
luxury good
question
IEoD between zero and 1
necessity good
question
IEoD less than 1
inferior good
question
price elasticity of supply formula
% change QS/% change P
question
marginal benefit
benefit from one additional unit; willingness to pay determines demand
question
consumer surplus
(value of good - price paid for it)/quantity bought
question
marginal cost
minimum price a firm is willing to accept; determines supply
question
producer surplus
(price received for good - minimum supply price)/quantity sold
question
it's not fair is the result isn't fair
utilitarianism (maximum happiness for maximum amount)
question
it's not fair if the rules aren't fair
symmetry principle (people in similar situations be treated similarly)
question
rent ceilings
leads to inefficient use of resources; search activity increases due to shortage
question
rent ceiling fair rules
unfair - blocks voluntary exchange
question
rent ceiling fair results
unfair - does not benefit poor
question
minimum wage
leads to inefficient use of resources
question
price rises by full amount of tax
question
price rises by partial amount of tax
question
price does not rise after tax
seller pays entire tax
question
taxes on perfectly inelastic demand
question
taxes on perfectly elastic demand
seller pays entire tax
question
taxes on perfectly inelastic supply
seller pays entire tax
question
taxes on perfectly elastic supply
question
budget line
shows limits to consumption choices
question
relative price formula
P good 1/P good 2
question
price change effect on budget line
rotation
question
income change effect on budget line
shift
question
real income
quantity of goods that can be afforded to buy
question
utility
benefit/satisfaction from consuming a good or service
question
total utility
total benefit received from consumption of goods (more consumer = more utility)
question
marginal utility formula
change in total utility/change in # of units consumed
question
diminishing marginal utility
utility decreases as more of a product or service is consumed
question
consumer optimum
utility maximizing choice
question
marginal utility per dollar
marginal utility/price
question
substitution effect
tendency of people to substitute cheaper commodities for more expensive ones
question
real-income effect
change in purchasing power as a result of a price change
question
demand for normal goods as income increases
increases
question
perfect competition characteristics
question
firm is a price (taker/setter) in perfect competition
taker
question
short run decisions for perfect competition
produce or shut down temporarily; what quantity to produce
question
long run decisions for perfect competition
increase or decrease plant size; stay in industry or leave
question
profit maximizing rate of production
maximizes total profits; intersection of firms' demand curve and marginal cost curve
question
marginal revenue formula
change in TR/change in output
question
marginal cost formula
change in TC/change in output
question
short run break-even price
TR = TC
question
short run shutdown price
price just covers AVC
question
P > ATC
positive economic profit
question
ATC > P > AVC
negative economic profit (still produce)
question
P < AVC
negative economic profit (shut down)
question
economies of scale
COGS decreases due to increase in sales (decreasing-cost industry)
question
diseconomies of scale
COGS increases due to increase in sales (increasing-cost industry)
question
monopolistic competition characteristics
no close substitutes, hard to raise adequate capital, economies of scale, legal barriers to entry
question
a monopoly is a price (taker/setter)
setter
question
demand for a monopoly
market demand
question
how does a monopoly sell a larger output
lower price
question
price discrimination
selling a product at more than one price (airline tickets)
question
price differentiation
different prices for similar products that reflect marginal cost
question
oligopoly
few (dominant) sellers in a market
question
oligopoly characteristics
small number of firms, price searchers, high barriers to entry (economies of scale, government barriers)
question
strategic dependence in oligopolies
firms' decisions affect other firms' decisions
question
four components of a game
players (decision makers)
actions (possible choices/outcomes)
payoffs (outcomes)
move order (rules)
question
simultaneous game
move at same time, unaware of other players' moves
question
sequential game
players move in different orders and are aware of others' actions
question
zero-sum game
any gains of one are exactly offset by losses at the end
question
negative-sum game
everyone loses
question
positive-sum game
everyone wins
question
dominant strategies
yield highest benefit
question
opportunistic behavior
ignore possible long-run benefits while focusing on short-run gains
question
tit-for-tat strategy
cooperation continues as long as others' cooperate
question
largest firm publishes price first
question
price war
campaign to cut competitors by repeatedly cutting prices
question
best response in game theory
maximize your utility given their move
question
dominated strategy
can always do better by playing another strategy
question
nash equilibrium
no player have incentive to deviate from their strategy
question
backwards induction
determines dominant strategy; start and end of game and move backwards
1 of 85
question
price elasticity of demand formula
% change QD/% change P
question
elasticity of demand between 2 points formula
(Q2 - Q1)/average
question
elastic demand
Ep greater than 1
question
perfectly elastic demand
Ep equals infinity
question
unit elastic demand
Ep = 1
question
inelastic demand
Ep between 0 and 1
question
perfectly inelastic demand
Ep = 0
question
cross price elasticity of demand formula
% change QD of X/% change P of Y
question
substitutes CPEoD
positive (increase P of X = increase QD of Y)
question
complements CPEoD
negative (increase P of X = decrease QD of Y)
question
income elasticity of demand formula
% change QD/% change income
question
IEoD is positive
normal good
question
IEoD greater than 1
luxury good
question
IEoD between zero and 1
necessity good
question
IEoD less than 1
inferior good
question
price elasticity of supply formula
% change QS/% change P
question
marginal benefit
benefit from one additional unit; willingness to pay determines demand
question
consumer surplus
(value of good - price paid for it)/quantity bought
question
marginal cost
minimum price a firm is willing to accept; determines supply
question
producer surplus
(price received for good - minimum supply price)/quantity sold
question
it's not fair is the result isn't fair
utilitarianism (maximum happiness for maximum amount)
question
it's not fair if the rules aren't fair
symmetry principle (people in similar situations be treated similarly)
question
rent ceilings
leads to inefficient use of resources; search activity increases due to shortage
question
rent ceiling fair rules
unfair - blocks voluntary exchange
question
rent ceiling fair results
unfair - does not benefit poor
question
minimum wage
leads to inefficient use of resources
question
price rises by full amount of tax
question
price rises by partial amount of tax
question
price does not rise after tax
seller pays entire tax
question
taxes on perfectly inelastic demand
question
taxes on perfectly elastic demand
seller pays entire tax
question
taxes on perfectly inelastic supply
seller pays entire tax
question
taxes on perfectly elastic supply
question
budget line
shows limits to consumption choices
question
relative price formula
P good 1/P good 2
question
price change effect on budget line
rotation
question
income change effect on budget line
shift
question
real income
quantity of goods that can be afforded to buy
question
utility
benefit/satisfaction from consuming a good or service
question
total utility
total benefit received from consumption of goods (more consumer = more utility)
question
marginal utility formula
change in total utility/change in # of units consumed
question
diminishing marginal utility
utility decreases as more of a product or service is consumed
question
consumer optimum
utility maximizing choice
question
marginal utility per dollar
marginal utility/price
question
substitution effect
tendency of people to substitute cheaper commodities for more expensive ones
question
real-income effect
change in purchasing power as a result of a price change
question
demand for normal goods as income increases
increases
question
perfect competition characteristics
question
firm is a price (taker/setter) in perfect competition
taker
question
short run decisions for perfect competition
produce or shut down temporarily; what quantity to produce
question
long run decisions for perfect competition
increase or decrease plant size; stay in industry or leave
question
profit maximizing rate of production
maximizes total profits; intersection of firms' demand curve and marginal cost curve
question
marginal revenue formula
change in TR/change in output
question
marginal cost formula
change in TC/change in output
question
short run break-even price
TR = TC
question
short run shutdown price
price just covers AVC
question
P > ATC
positive economic profit
question
ATC > P > AVC
negative economic profit (still produce)
question
P < AVC
negative economic profit (shut down)
question
economies of scale
COGS decreases due to increase in sales (decreasing-cost industry)
question
diseconomies of scale
COGS increases due to increase in sales (increasing-cost industry)
question
monopolistic competition characteristics
no close substitutes, hard to raise adequate capital, economies of scale, legal barriers to entry
question
a monopoly is a price (taker/setter)
setter
question
demand for a monopoly
market demand
question
how does a monopoly sell a larger output
lower price
question
price discrimination
selling a product at more than one price (airline tickets)
question
price differentiation
different prices for similar products that reflect marginal cost
question
oligopoly
few (dominant) sellers in a market
question
oligopoly characteristics
small number of firms, price searchers, high barriers to entry (economies of scale, government barriers)
question
strategic dependence in oligopolies
firms' decisions affect other firms' decisions
question
four components of a game
players (decision makers)
actions (possible choices/outcomes)
payoffs (outcomes)
move order (rules)
question
simultaneous game
move at same time, unaware of other players' moves
question
sequential game
players move in different orders and are aware of others' actions
question
zero-sum game
any gains of one are exactly offset by losses at the end
question
negative-sum game
everyone loses
question
positive-sum game
everyone wins
question
dominant strategies
yield highest benefit
question
opportunistic behavior
ignore possible long-run benefits while focusing on short-run gains
question
tit-for-tat strategy
cooperation continues as long as others' cooperate
question
largest firm publishes price first
question
price war
campaign to cut competitors by repeatedly cutting prices
question
best response in game theory
maximize your utility given their move
question
dominated strategy
can always do better by playing another strategy
question
nash equilibrium
no player have incentive to deviate from their strategy
question
backwards induction
determines dominant strategy; start and end of game and move backwards

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