ECON exam 2

 price of elasticity of demand a measure of the responsiveness of the quantity demanded to changes in price elastic demand the price elasticity of demand is greater than one, so the percentage change in quantity exceeds the percentage change in price inelastic demand the price elasticity of demand is less than one so the percentage change in quantity equals the percentage change in price unit elastic demand the price elasticity of demand is one, so the percentage change in quantity equals the percentage change in price perfectly inelastic demand the price elasticity of demand is zero formula for the Price Elasticity of Demand (Ed) Ed= |% change in quantity demanded ÷ % change in price| total revenue the money a firm generates from selling its product income elasticity of demand a measure of the responsiveness of demand to changes in consumer income formula for Income Elasticity of Demand (Et) Et= % change in quantity demanded ÷ % change in income cross-price elasticity of demand a measure of the responsiveness of demand to changes in the price of another good formula for Cross-Price Elasticity of Demand (Exy) Exy= % change in quanitity of X demanded ÷ % change in price Y price elasticity of supply a measure of the responsiveness of the quantity supplied to changes in price formula for Price Elasticity of Supply (Es) Es= % change in quantitiy supplied ÷ % change in price perfectly inelastic supply the price elasticity of supply equals 0 perfectly elastic supply the price elasticity of supply is equal to ∞ Utility the satisfaction experienced from consuming a good Util one unit of utility marginal utility the change in total utility from one additional unit of a good law of diminishing marginal utility as the consumption of a particular good increases, marginal utility decreases. budget line the line connecting all the combinations of two goods that exhaust a consumer's budget budget set a set of points that includes all the combinations of two goods that a consumer can afford, given the consumer's income and the prices of the goods equimarginal rule pick the combinations of two activites where the marginal benefit per dollar for the first activity equals the marginal benefit per dollar for the second activity substitution effect the chnage in quantity consumed that is caused by a change in the relative priece of the good, with real income held constant income effect the change in quantity consumed that is caused by a change in real income, with relative prices held contant economic profit total revenue minus economic cost economic cost the opportunity cost of thte inputs used in the production process, equal to explicit cost plus implicit cost explicit cost a monetary payment implicit cost an opportunity cost that does not involve a monetary payment accounting cost the explicit cost of production accounting profit total revenue minus accounting cost marginal product of labor the change in output from one additional unit of labor diminishing returns as one input increases while the other inputs are held fixed, ouput increases at a decreasing rate total-product curve a curve showing the relationship between the quantity of labor and the quantity of output produced, ceteris paribus Fixed cost (FC) cost that does no vary with the quantity produced variable cost (VC) cost that varies with the quantity produced Short-run total cost (TC) the total cost of production when at least one input is fixed; equal to fixed cost plus variable cost average fixed cost (AFC) fixed cost divided by the quantity produced average variable cost (AVC) variable cost divided by the quantity produced Short-run average total cost (ATC) short-run total cost divided by the quantity produced; equal to AFC plus AVC Short-run marginal cost (MC) the change in short-run total cost resulting from a one unit increase in output long-run total cost (LTC) the total cost of production when a firm is perfectly flexible in choosing its inputs long-run average cost (LAC) the long-run cost divided by the quantity produced constant returns to scale a situation in which the long-run total cost increases proportionately with output, so average cost is constant long-run marginal cost (LMC) the change in long-run cost resulting from a one-unit increase in output indivisible input an input that cannot be scaled down to produce a smaller quantity of output economies of scale a situation in which the long-run average cost of production decreases as output increases minimum efficient scale the ouput at which scale economies are exhausted diseconomies of scale a situation in which the long-run average cost of production increases as output increases perfectly competetive market a market with many sellers and buyers of a homogeneous product and no barriers to entry price taker a buyer or seller that takes the market price as given firm-specific demand curve a curve showing the relationship between the price charged by a specific firm and the quantity the firm can sell break-even price the price at which economic profit is zero; price equals average total cost shut-down price the price at which the firm is indifferent between operating and shutting down; equal to the minimum average variable cost sunk cost a cost that a firm has already paid or committed to pay, so it cannot be recovered short-run supply curve a curve showing the relationship bwtween the market price of a product and the quantity of output supplied by a firm in the short run short-run market supply curve a curve showing the relationship between the market price and quantity supplied in the short run long-run market supply curve a curve showing the relationship between the market price and quantity supplied in the long run increasing-cost industry an industry in which the averge cost of production increases as the total ouput of the industry increases; the long-run supply is positively sloped constant-cost industry an industry in which the average cost of production is constant; the long-run supply curve is horizontal Authortenorsextets ID128284 Card SetECON exam 2 Descriptionstuff Updated2012-01-29T02:27:10Z Show Answers