econ b251

question

price elasticity of demand formula

answer

% change QD/% change P

question

elasticity of demand between 2 points formula

answer

(Q2 - Q1)/average

question

elastic demand

answer

Ep greater than 1

question

perfectly elastic demand

answer

Ep equals infinity

question

unit elastic demand

answer

Ep = 1

question

inelastic demand

answer

Ep between 0 and 1

question

perfectly inelastic demand

answer

Ep = 0

question

cross price elasticity of demand formula

answer

% change QD of X/% change P of Y

question

substitutes CPEoD

answer

positive (increase P of X = increase QD of Y)

question

complements CPEoD

answer

negative (increase P of X = decrease QD of Y)

question

income elasticity of demand formula

answer

% change QD/% change income

question

IEoD is positive

answer

normal good

question

IEoD greater than 1

answer

luxury good

question

IEoD between zero and 1

answer

necessity good

question

IEoD less than 1

answer

inferior good

question

price elasticity of supply formula

answer

% change QS/% change P

question

marginal benefit

answer

benefit from one additional unit; willingness to pay determines demand

question

consumer surplus

answer

(value of good - price paid for it)/quantity bought

question

marginal cost

answer

minimum price a firm is willing to accept; determines supply

question

producer surplus

answer

(price received for good - minimum supply price)/quantity sold

question

it's not fair is the result isn't fair

answer

utilitarianism (maximum happiness for maximum amount)

question

it's not fair if the rules aren't fair

answer

symmetry principle (people in similar situations be treated similarly)

question

rent ceilings

answer

leads to inefficient use of resources; search activity increases due to shortage

question

rent ceiling fair rules

answer

unfair - blocks voluntary exchange

question

rent ceiling fair results

answer

unfair - does not benefit poor

question

minimum wage

answer

leads to inefficient use of resources

question

price rises by full amount of tax

answer

buyer pays entire tax

question

price rises by partial amount of tax

answer

buyer and seller share tax

question

price does not rise after tax

answer

seller pays entire tax

question

taxes on perfectly inelastic demand

answer

buyer pays entire tax

question

taxes on perfectly elastic demand

answer

seller pays entire tax

question

taxes on perfectly inelastic supply

answer

seller pays entire tax

question

taxes on perfectly elastic supply

answer

buyer pays entire tax

question

budget line

answer

shows limits to consumption choices

question

relative price formula

answer

P good 1/P good 2

question

price change effect on budget line

answer

rotation

question

income change effect on budget line

answer

shift

question

real income

answer

quantity of goods that can be afforded to buy

question

utility

answer

benefit/satisfaction from consuming a good or service

question

total utility

answer

total benefit received from consumption of goods (more consumer = more utility)

question

marginal utility formula

answer

change in total utility/change in # of units consumed

question

diminishing marginal utility

answer

utility decreases as more of a product or service is consumed

question

consumer optimum

answer

utility maximizing choice

question

marginal utility per dollar

answer

marginal utility/price

question

substitution effect

answer

tendency of people to substitute cheaper commodities for more expensive ones

question

real-income effect

answer

change in purchasing power as a result of a price change

question

demand for normal goods as income increases

answer

increases

question

perfect competition characteristics

answer

large number of buyers and sellers, homogenous products, no barriers to entry or exit, buyers and sellers have equal access to information

question

firm is a price (taker/setter) in perfect competition

answer

taker

question

short run decisions for perfect competition

answer

produce or shut down temporarily; what quantity to produce

question

long run decisions for perfect competition

answer

increase or decrease plant size; stay in industry or leave

question

profit maximizing rate of production

answer

maximizes total profits; intersection of firms' demand curve and marginal cost curve

question

marginal revenue formula

answer

change in TR/change in output

question

marginal cost formula

answer

change in TC/change in output

question

short run break-even price

answer

TR = TC

question

short run shutdown price

answer

price just covers AVC

question

P > ATC

answer

positive economic profit

question

ATC > P > AVC

answer

negative economic profit (still produce)

question

P < AVC

answer

negative economic profit (shut down)

question

economies of scale

answer

COGS decreases due to increase in sales (decreasing-cost industry)

question

diseconomies of scale

answer

COGS increases due to increase in sales (increasing-cost industry)

question

monopolistic competition characteristics

answer

no close substitutes, hard to raise adequate capital, economies of scale, legal barriers to entry

question

a monopoly is a price (taker/setter)

answer

setter

question

demand for a monopoly

answer

market demand

question

how does a monopoly sell a larger output

answer

lower price

question

price discrimination

answer

selling a product at more than one price (airline tickets)

question

price differentiation

answer

different prices for similar products that reflect marginal cost

question

oligopoly

answer

few (dominant) sellers in a market

question

oligopoly characteristics

answer

small number of firms, price searchers, high barriers to entry (economies of scale, government barriers)

question

strategic dependence in oligopolies

answer

firms' decisions affect other firms' decisions

question

four components of a game

answer

players (decision makers)
actions (possible choices/outcomes)
payoffs (outcomes)
move order (rules)

question

simultaneous game

answer

move at same time, unaware of other players' moves

question

sequential game

answer

players move in different orders and are aware of others' actions

question

zero-sum game

answer

any gains of one are exactly offset by losses at the end

question

negative-sum game

answer

everyone loses

question

positive-sum game

answer

everyone wins

question

dominant strategies

answer

yield highest benefit

question

opportunistic behavior

answer

ignore possible long-run benefits while focusing on short-run gains

question

tit-for-tat strategy

answer

cooperation continues as long as others' cooperate

question

price leadership

answer

largest firm publishes price first

question

price war

answer

campaign to cut competitors by repeatedly cutting prices

question

best response in game theory

answer

maximize your utility given their move

question

dominated strategy

answer

can always do better by playing another strategy

question

nash equilibrium

answer

no player have incentive to deviate from their strategy

question

backwards induction

answer

determines dominant strategy; start and end of game and move backwards

1 of 85

question

price elasticity of demand formula

answer

% change QD/% change P

question

elasticity of demand between 2 points formula

answer

(Q2 - Q1)/average

question

elastic demand

answer

Ep greater than 1

question

perfectly elastic demand

answer

Ep equals infinity

question

unit elastic demand

answer

Ep = 1

question

inelastic demand

answer

Ep between 0 and 1

question

perfectly inelastic demand

answer

Ep = 0

question

cross price elasticity of demand formula

answer

% change QD of X/% change P of Y

question

substitutes CPEoD

answer

positive (increase P of X = increase QD of Y)

question

complements CPEoD

answer

negative (increase P of X = decrease QD of Y)

question

income elasticity of demand formula

answer

% change QD/% change income

question

IEoD is positive

answer

normal good

question

IEoD greater than 1

answer

luxury good

question

IEoD between zero and 1

answer

necessity good

question

IEoD less than 1

answer

inferior good

question

price elasticity of supply formula

answer

% change QS/% change P

question

marginal benefit

answer

benefit from one additional unit; willingness to pay determines demand

question

consumer surplus

answer

(value of good - price paid for it)/quantity bought

question

marginal cost

answer

minimum price a firm is willing to accept; determines supply

question

producer surplus

answer

(price received for good - minimum supply price)/quantity sold

question

it's not fair is the result isn't fair

answer

utilitarianism (maximum happiness for maximum amount)

question

it's not fair if the rules aren't fair

answer

symmetry principle (people in similar situations be treated similarly)

question

rent ceilings

answer

leads to inefficient use of resources; search activity increases due to shortage

question

rent ceiling fair rules

answer

unfair - blocks voluntary exchange

question

rent ceiling fair results

answer

unfair - does not benefit poor

question

minimum wage

answer

leads to inefficient use of resources

question

price rises by full amount of tax

answer

buyer pays entire tax

question

price rises by partial amount of tax

answer

buyer and seller share tax

question

price does not rise after tax

answer

seller pays entire tax

question

taxes on perfectly inelastic demand

answer

buyer pays entire tax

question

taxes on perfectly elastic demand

answer

seller pays entire tax

question

taxes on perfectly inelastic supply

answer

seller pays entire tax

question

taxes on perfectly elastic supply

answer

buyer pays entire tax

question

budget line

answer

shows limits to consumption choices

question

relative price formula

answer

P good 1/P good 2

question

price change effect on budget line

answer

rotation

question

income change effect on budget line

answer

shift

question

real income

answer

quantity of goods that can be afforded to buy

question

utility

answer

benefit/satisfaction from consuming a good or service

question

total utility

answer

total benefit received from consumption of goods (more consumer = more utility)

question

marginal utility formula

answer

change in total utility/change in # of units consumed

question

diminishing marginal utility

answer

utility decreases as more of a product or service is consumed

question

consumer optimum

answer

utility maximizing choice

question

marginal utility per dollar

answer

marginal utility/price

question

substitution effect

answer

tendency of people to substitute cheaper commodities for more expensive ones

question

real-income effect

answer

change in purchasing power as a result of a price change

question

demand for normal goods as income increases

answer

increases

question

perfect competition characteristics

answer

large number of buyers and sellers, homogenous products, no barriers to entry or exit, buyers and sellers have equal access to information

question

firm is a price (taker/setter) in perfect competition

answer

taker

question

short run decisions for perfect competition

answer

produce or shut down temporarily; what quantity to produce

question

long run decisions for perfect competition

answer

increase or decrease plant size; stay in industry or leave

question

profit maximizing rate of production

answer

maximizes total profits; intersection of firms' demand curve and marginal cost curve

question

marginal revenue formula

answer

change in TR/change in output

question

marginal cost formula

answer

change in TC/change in output

question

short run break-even price

answer

TR = TC

question

short run shutdown price

answer

price just covers AVC

question

P > ATC

answer

positive economic profit

question

ATC > P > AVC

answer

negative economic profit (still produce)

question

P < AVC

answer

negative economic profit (shut down)

question

economies of scale

answer

COGS decreases due to increase in sales (decreasing-cost industry)

question

diseconomies of scale

answer

COGS increases due to increase in sales (increasing-cost industry)

question

monopolistic competition characteristics

answer

no close substitutes, hard to raise adequate capital, economies of scale, legal barriers to entry

question

a monopoly is a price (taker/setter)

answer

setter

question

demand for a monopoly

answer

market demand

question

how does a monopoly sell a larger output

answer

lower price

question

price discrimination

answer

selling a product at more than one price (airline tickets)

question

price differentiation

answer

different prices for similar products that reflect marginal cost

question

oligopoly

answer

few (dominant) sellers in a market

question

oligopoly characteristics

answer

small number of firms, price searchers, high barriers to entry (economies of scale, government barriers)

question

strategic dependence in oligopolies

answer

firms' decisions affect other firms' decisions

question

four components of a game

answer

players (decision makers)
actions (possible choices/outcomes)
payoffs (outcomes)
move order (rules)

question

simultaneous game

answer

move at same time, unaware of other players' moves

question

sequential game

answer

players move in different orders and are aware of others' actions

question

zero-sum game

answer

any gains of one are exactly offset by losses at the end

question

negative-sum game

answer

everyone loses

question

positive-sum game

answer

everyone wins

question

dominant strategies

answer

yield highest benefit

question

opportunistic behavior

answer

ignore possible long-run benefits while focusing on short-run gains

question

tit-for-tat strategy

answer

cooperation continues as long as others' cooperate

question

price leadership

answer

largest firm publishes price first

question

price war

answer

campaign to cut competitors by repeatedly cutting prices

question

best response in game theory

answer

maximize your utility given their move

question

dominated strategy

answer

can always do better by playing another strategy

question

nash equilibrium

answer

no player have incentive to deviate from their strategy

question

backwards induction

answer

determines dominant strategy; start and end of game and move backwards

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econ b251

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