Micro Unit Test Terms

question

price elasticity of demand

answer

a measure of the sensitivity of demand to changes in price

question

midpoint formula

answer

To calculate elasticity (change in q/ sum of q/2) divided by (change in p/ sum of p/2)

question

Elasticity Ranges

answer

Elastic (above 1) Inelastic (below 1) Unit Elastic (at 1)

question

total revenue test

answer

(Price x Quantity)
Uses elasticity to show how changes in P effect total revenue
Inelastic demand- Price increases, TR increases
Elastic- Price increases, TR decreases

question

price elasticity of supply

answer

a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price

question

cross price elasticity

answer

Determines whether a good is a substitute good(CP=Positive), Complementary (CP=Negative), or unrelated (CP=0). Formula is %change in QD of Product X / % change in price of product Y

question

Income Elasticity

answer

Determines whether a good is a normal good (IE=Positive) or inferior good (IE=Negative) Formula: (% change in quantity demanded / % change in income)

question

Utility

answer

the amount of satisfaction one gets from a good or service

question

marginal utility

answer

Change in satisfaction from consuming another unit of the same product

question

total utility

answer

the total amount of satisfaction obtained from consumption of a good or service Formula: (add up all marginal Utility)

question

Utility Maximization Rule

answer

To get the most for your dollar (Will always maximize the amount of satisfaction)

question

behavioral economics

answer

the study of situations in which people make choices that do not appear to be economically rational

question

explicit costs

answer

Costs that companies have to pay monthly (ex:rent, labor, etc)

question

implicit costs

answer

opportunity costs (what could have been made elsewhere)

question

accounting profit

answer

total revenue minus total explicit cost

question

normal profit

answer

What somebody could be making elsewhere

question

law of diminishing returns

answer

the principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline and output to increase

question

fixed costs

answer

costs that remain constant as output changes

question

Average Fixed Cost (AFC)

answer

FC/Q (Fixed cost/ quantity)

question

variable costs

answer

costs that change when the quantity of output changes

question

Average Variable Cost (AVC)

answer

VC/Q (variable cost/ quantity)

question

Total Cost (TC)

answer

total fixed costs plus total variable costs (FC+VC)

question

Average Total Cost (ATC)

answer

TC/Q (total costs / quantity)

question

marginal cost

answer

the cost of producing one more unit of a good Formula: (change in cost/ change in quantity)

question

Economies of Scale

answer

Cost advantages reaped by companies when production becomes efficient

question

diseconomies of scale

answer

Cost disadvantages due to increased output

question

constant returns of scale

answer

Increase in input results In a proportional increase in output

1 of 27

question

price elasticity of demand

answer

a measure of the sensitivity of demand to changes in price

question

midpoint formula

answer

To calculate elasticity (change in q/ sum of q/2) divided by (change in p/ sum of p/2)

question

Elasticity Ranges

answer

Elastic (above 1) Inelastic (below 1) Unit Elastic (at 1)

question

total revenue test

answer

(Price x Quantity)
Uses elasticity to show how changes in P effect total revenue
Inelastic demand- Price increases, TR increases
Elastic- Price increases, TR decreases

question

price elasticity of supply

answer

a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price

question

cross price elasticity

answer

Determines whether a good is a substitute good(CP=Positive), Complementary (CP=Negative), or unrelated (CP=0). Formula is %change in QD of Product X / % change in price of product Y

question

Income Elasticity

answer

Determines whether a good is a normal good (IE=Positive) or inferior good (IE=Negative) Formula: (% change in quantity demanded / % change in income)

question

Utility

answer

the amount of satisfaction one gets from a good or service

question

marginal utility

answer

Change in satisfaction from consuming another unit of the same product

question

total utility

answer

the total amount of satisfaction obtained from consumption of a good or service Formula: (add up all marginal Utility)

question

Utility Maximization Rule

answer

To get the most for your dollar (Will always maximize the amount of satisfaction)

question

behavioral economics

answer

the study of situations in which people make choices that do not appear to be economically rational

question

explicit costs

answer

Costs that companies have to pay monthly (ex:rent, labor, etc)

question

implicit costs

answer

opportunity costs (what could have been made elsewhere)

question

accounting profit

answer

total revenue minus total explicit cost

question

normal profit

answer

What somebody could be making elsewhere

question

law of diminishing returns

answer

question

fixed costs

answer

costs that remain constant as output changes

question

Average Fixed Cost (AFC)

answer

FC/Q (Fixed cost/ quantity)

question

variable costs

answer

costs that change when the quantity of output changes

question

Average Variable Cost (AVC)

answer

VC/Q (variable cost/ quantity)

question

Total Cost (TC)

answer

total fixed costs plus total variable costs (FC+VC)

question

Average Total Cost (ATC)

answer

TC/Q (total costs / quantity)

question

marginal cost

answer

the cost of producing one more unit of a good Formula: (change in cost/ change in quantity)

question

Economies of Scale

answer

Cost advantages reaped by companies when production becomes efficient

question

diseconomies of scale

answer

Cost disadvantages due to increased output

question

constant returns of scale

answer

Increase in input results In a proportional increase in output

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Micro Unit Test Terms

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