Test 3 Economics - Custom Scholars
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Test 3 Economics

question
Elasticity
Measure of how much one economic variable responds to changes in another economic variable.
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price elasticity of demand
The responsiveness of the quantity demanded to a change in price, measured by dividing the percentage change in the quantity demanded of a product by the percentage change in the product's price.
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Elastic Demand
Inelastic Demand
Unit Elastic Demand
Greater than 1
0-1
1
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Percentage change in quantity formula
Q2-Q1/Q1+Q2/2
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Percentage change in price formula
P2-P1/P1+P2/2
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Midpoint formula
Q2-Q1/Q1+Q2/2
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Determinants of Price elasticity of demand
Availability of substitutes, passage of time, necessity versus luxury, definition of the market and share of a good in a consumers budget.
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Total Revenue
Price times quantity
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Inelastic demand

Elastic Demand
Price decrease, Revenue decrease

Price goes up, revenue goes down
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cross-price elasticity of demand
Percentage change in quantity of one good divided by the percentage change in price of another good.
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income elasticity of demand
measure of responsiveness of quantity demanded to changes in income. equation for this is % change in quantity demanded/percentage change in income.
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Normal goods
Inferior goods
Necessity and luxury
positive elasticity
Negative elasticity
Necessity goods<1 Luxury goods>1
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If supply is perfectly elastic
value of price elasticity is equal to infinity
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If supply is perfectly inelastic
value of price elasticity is equal to 0
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Technology
processes a firm uses to turn inputs into outputs of goods and services.
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Short Run
Period of time where one of a firms input is fixed.
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Long Run
Period of time in which a firm can vary all its inputs, adopt a new technology, and increase or decrease the size of its physical plant.
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Explicit Cost
Cost that involves spending money
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Implicit Costs
A nonmonetary opportunity cost.
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Accounting costs
Economic costs
Lower, profit larger

Costs larger, profit lower
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Total Cost
Cost of all the inputs a firm uses in production
Fixed cost+ variable cost
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Variable cost
costs that change as output changes
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Fixed costs
costs that remain constant as output changes
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production function
relationship between the inputs employed by a firm and the maximum output the firm can product with those inputs.
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Average total cost
Total cost divided by the quantity of output produced. This is a U shaped curve.
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Marginal product of labor
additional output a firm produces as a result of hiring one more worker

Change in output/change in labor
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Diminishing marginal returns
At some point, adding more of a variable input, such as labor, to the same fixed input, will cause the marginal product of the variable input to decline.
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Average product of labor
Output (quantity)/# of workers
question
MPL>APL
APL is increasing
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APL>MPL
APL is decreasing
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APL=MPL
APL is at a max
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Marginal Cost
change in a firms total cost from producing one more unit of a good or service.

Change in total cost/change in quantity
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Average fixed cost
Fixed cost/quantity of output produced

AFC=FC/Q
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Average Varaible Cost
Variable cost/quantity of output produced

AVC=VC/Q
question
As output decreases, AFC
As output increases,
gets smaller
difference between ATC and AVC decreases.
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long-run average total cost curve
curve showing the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed.
question
Economies of scale
situation in which a firms long run average cost falls as it increase the quantity of output it produces.
question
Minimum Efficient scale
the level of output at which all economies of scale are exhausted.
1 of 38
question
Elasticity
Measure of how much one economic variable responds to changes in another economic variable.
question
price elasticity of demand
The responsiveness of the quantity demanded to a change in price, measured by dividing the percentage change in the quantity demanded of a product by the percentage change in the product's price.
question
Elastic Demand
Inelastic Demand
Unit Elastic Demand
Greater than 1
0-1
1
question
Percentage change in quantity formula
Q2-Q1/Q1+Q2/2
question
Percentage change in price formula
P2-P1/P1+P2/2
question
Midpoint formula
Q2-Q1/Q1+Q2/2
question
Determinants of Price elasticity of demand
Availability of substitutes, passage of time, necessity versus luxury, definition of the market and share of a good in a consumers budget.
question
Total Revenue
Price times quantity
question
Inelastic demand

Elastic Demand
Price decrease, Revenue decrease

Price goes up, revenue goes down
question
cross-price elasticity of demand
Percentage change in quantity of one good divided by the percentage change in price of another good.
question
income elasticity of demand
measure of responsiveness of quantity demanded to changes in income. equation for this is % change in quantity demanded/percentage change in income.
question
Normal goods
Inferior goods
Necessity and luxury
positive elasticity
Negative elasticity
Necessity goods<1 Luxury goods>1
question
If supply is perfectly elastic
value of price elasticity is equal to infinity
question
If supply is perfectly inelastic
value of price elasticity is equal to 0
question
Technology
processes a firm uses to turn inputs into outputs of goods and services.
question
Short Run
Period of time where one of a firms input is fixed.
question
Long Run
Period of time in which a firm can vary all its inputs, adopt a new technology, and increase or decrease the size of its physical plant.
question
Explicit Cost
Cost that involves spending money
question
Implicit Costs
A nonmonetary opportunity cost.
question
Accounting costs
Economic costs
Lower, profit larger

Costs larger, profit lower
question
Total Cost
Cost of all the inputs a firm uses in production
Fixed cost+ variable cost
question
Variable cost
costs that change as output changes
question
Fixed costs
costs that remain constant as output changes
question
production function
relationship between the inputs employed by a firm and the maximum output the firm can product with those inputs.
question
Average total cost
Total cost divided by the quantity of output produced. This is a U shaped curve.
question
Marginal product of labor
additional output a firm produces as a result of hiring one more worker

Change in output/change in labor
question
Diminishing marginal returns
At some point, adding more of a variable input, such as labor, to the same fixed input, will cause the marginal product of the variable input to decline.
question
Average product of labor
Output (quantity)/# of workers
question
MPL>APL
APL is increasing
question
APL>MPL
APL is decreasing
question
APL=MPL
APL is at a max
question
Marginal Cost
change in a firms total cost from producing one more unit of a good or service.

Change in total cost/change in quantity
question
Average fixed cost
Fixed cost/quantity of output produced

AFC=FC/Q
question
Average Varaible Cost
Variable cost/quantity of output produced

AVC=VC/Q
question
As output decreases, AFC
As output increases,
gets smaller
difference between ATC and AVC decreases.
question
long-run average total cost curve
curve showing the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed.
question
Economies of scale
situation in which a firms long run average cost falls as it increase the quantity of output it produces.
question
Minimum Efficient scale
the level of output at which all economies of scale are exhausted.

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