Test 3 Economics

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Elasticity

answer

Measure of how much one economic variable responds to changes in another economic variable.

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price elasticity of demand

answer

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

answer

Greater than 1
0-1
1

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Percentage change in quantity formula

answer

Q2-Q1/Q1+Q2/2

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Percentage change in price formula

answer

P2-P1/P1+P2/2

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Midpoint formula

answer

Q2-Q1/Q1+Q2/2

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Determinants of Price elasticity of demand

answer

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

answer

Price times quantity

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Inelastic demand

Elastic Demand

answer

Price decrease, Revenue decrease

Price goes up, revenue goes down

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cross-price elasticity of demand

answer

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

answer

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

answer

positive elasticity
Negative elasticity
Necessity goods<1 Luxury goods>1

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If supply is perfectly elastic

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value of price elasticity is equal to infinity

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If supply is perfectly inelastic

answer

value of price elasticity is equal to 0

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Technology

answer

processes a firm uses to turn inputs into outputs of goods and services.

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Short Run

answer

Period of time where one of a firms input is fixed.

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Long Run

answer

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

answer

Cost that involves spending money

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Implicit Costs

answer

A nonmonetary opportunity cost.

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Accounting costs
Economic costs

answer

Lower, profit larger

Costs larger, profit lower

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Total Cost

answer

Cost of all the inputs a firm uses in production
Fixed cost+ variable cost

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Variable cost

answer

costs that change as output changes

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Fixed costs

answer

costs that remain constant as output changes

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production function

answer

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

answer

Total cost divided by the quantity of output produced. This is a U shaped curve.

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Marginal product of labor

answer

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

answer

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

answer

Output (quantity)/# of workers

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MPL>APL

answer

APL is increasing

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APL>MPL

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APL is decreasing

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APL=MPL

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APL is at a max

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Marginal Cost

answer

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

answer

Fixed cost/quantity of output produced

AFC=FC/Q

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Average Varaible Cost

answer

Variable cost/quantity of output produced

AVC=VC/Q

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As output decreases, AFC
As output increases,

answer

gets smaller
difference between ATC and AVC decreases.

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long-run average total cost curve

answer

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.

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Economies of scale

answer

situation in which a firms long run average cost falls as it increase the quantity of output it produces.

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Minimum Efficient scale

answer

the level of output at which all economies of scale are exhausted.

1 of 38

question

Elasticity

answer

Measure of how much one economic variable responds to changes in another economic variable.

question

price elasticity of demand

answer

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

answer

Greater than 1
0-1
1

question

Percentage change in quantity formula

answer

Q2-Q1/Q1+Q2/2

question

Percentage change in price formula

answer

P2-P1/P1+P2/2

question

Midpoint formula

answer

Q2-Q1/Q1+Q2/2

question

Determinants of Price elasticity of demand

answer

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

answer

Price times quantity

question

Inelastic demand

Elastic Demand

answer

Price decrease, Revenue decrease

Price goes up, revenue goes down

question

cross-price elasticity of demand

answer

Percentage change in quantity of one good divided by the percentage change in price of another good.

question

income elasticity of demand

answer

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

answer

positive elasticity
Negative elasticity
Necessity goods<1 Luxury goods>1

question

If supply is perfectly elastic

answer

value of price elasticity is equal to infinity

question

If supply is perfectly inelastic

answer

value of price elasticity is equal to 0

question

Technology

answer

processes a firm uses to turn inputs into outputs of goods and services.

question

Short Run

answer

Period of time where one of a firms input is fixed.

question

Long Run

answer

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

answer

Cost that involves spending money

question

Implicit Costs

answer

A nonmonetary opportunity cost.

question

Accounting costs
Economic costs

answer

Lower, profit larger

Costs larger, profit lower

question

Total Cost

answer

Cost of all the inputs a firm uses in production
Fixed cost+ variable cost

question

Variable cost

answer

costs that change as output changes

question

Fixed costs

answer

costs that remain constant as output changes

question

production function

answer

relationship between the inputs employed by a firm and the maximum output the firm can product with those inputs.

question

Average total cost

answer

Total cost divided by the quantity of output produced. This is a U shaped curve.

question

Marginal product of labor

answer

additional output a firm produces as a result of hiring one more worker

Change in output/change in labor

question

Diminishing marginal returns

answer

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

answer

Output (quantity)/# of workers

question

MPL>APL

answer

APL is increasing

question

APL>MPL

answer

APL is decreasing

question

APL=MPL

answer

APL is at a max

question

Marginal Cost

answer

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

answer

Fixed cost/quantity of output produced

AFC=FC/Q

question

Average Varaible Cost

answer

Variable cost/quantity of output produced

AVC=VC/Q

question

As output decreases, AFC
As output increases,

answer

gets smaller
difference between ATC and AVC decreases.

question

long-run average total cost curve

answer

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

answer

situation in which a firms long run average cost falls as it increase the quantity of output it produces.

question

Minimum Efficient scale

answer

the level of output at which all economies of scale are exhausted.

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Test 3 Economics

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