Microeconomics - Handout 1
Microeconomics
Microeconomics
Set of flashcards Details
| Flashcards | 31 |
|---|---|
| Language | English |
| Category | Micro-Economics |
| Level | University |
| Created / Updated | 05.06.2016 / 03.12.2016 |
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Why is there an opportunity cost when introducing a minimum wage for workers?
Workers have to search harder for a job, as there are less jobs on the market.
How to calculate price elasticity?
Q2 - Q1 / ((Q1+Q2)/2) / P2 - P1 / ((P1+P2)/2) = PED
What does a price elasticity of demand mean when it has a value of 1?
Good is unit elastic.
What does a price elasticity of demand mean when it has a value of 0?
Perfectly inelastic good.
What does a price elasticity of demand mean when it has a value between 0 and 1?
Inelastic good.
What does a price elasticity of demand mean when it has a value bigger than 1?
Elastic good.
What are factors that affect the price elasticity of demand?
- Closeness of substitutes
- Proportion of income spent on good
- Time elapsed since price change
How to calculate and interpret cross price elasticity?
How to calculate XED? (Cross elasticity of demand)
How to calculate income elasticity of demand?
How do you calculate the price elasticity of supply?
What are factors that have an impact on the price elasticity of supply?
- Resource substitution possibilities (f.g. common resources, nothing rare)
- Time frame for supply decision
- Momentary supply > Inelastic, as producer costs are fixed in the short run
- Short-run supply > More elastic than momentary supply, can adjust some production
- Long-run supply > All production factors can be adjusted, More elastic than short-run supply
If a good has inelastic demand, a small percentage price increase will cause:
Increase in quantity sold
Decrease in Total revenue
If income rises by 4% and the quantity demanded increases by 40% the good is a(n):
If the price elasticity of demand is -3 and the price of the product increases by 2%, the quantity demanded will:
What is the consumer surplus of economy?
The sum of the consumer surpluses of all individual consumers.
What happens when the price exceeds the marginal cost?
The company receives a producer surplus.
How do you calculate producer surlpus?
Sales price - Minimum supply-price* (or marginal cost)
(*supply curve same as marginal cost curve)
What is the supply curve?
Minimum price which sellers would be willing to sell.
What is the producer surplus of an individual firm?
Sum of the surpluses on each unit.
What is the producer surplus of the economy?
Sum of producer surpluses of all individual firms.
How to calculate producer surplus (profit)?
Total revenue - Total producer cost = Producer surplus (profit)
What happens when buyers of a good are the only people benefiting from it?
The market demand curve would reflect the marginal social benefit, whis is the marginal benefit that the entire society receives from the last unit consumed.
What happens if only individuals who bear the cost of the goods and services are the individuals who produce them?
Then the supply curve measures the marginal cost to the entire society.
What happens at the market equilibrium where demand curve and supply curve intersect? (Social benefit vs. Marginal social cost)
Marginal social benefit and marginal social cost are equal.
When the efficient quantity is produced, total surlpus is maximized. Consumers and producers acting in their self-ineterest promote the social interest.
When does competitive equilibrium occur?
When quantity demanded = quantity produced
What are some obstacles to efficiency?
- Price and quantity regulation
- Taxes and subsidies
- Externalities
- Public goods and common resources
- Monopoly
- High transaction costs
Does a price ceiling above equilibrium price have an effect?
What effect has price celeing below the equilibrium price in rent prices?
Housing shortage.
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