1. Wealth of the Nations
    Adam Smth 1776
  2. Positive Economic Statement
    I make 8 dollars an hour
  3. Normative economic statement
    The minimum wage should be $8 an hour
  4. Law of demand
    indirect negative inverse relationship between price and Qd
  5. Determinants of Demand
    • Price of other Goods
    • Tastes/ Preferences
    • Income/Wealth
    • Quality
    • Expectation of price change
    • Number of buyers
  6. Price elasticity
    sensitivity of Qd to P
  7. Point Method Equation
    (Q2-Q1)/Q1 (P2-P1)/P1
  8. Ed is related to what?
    Inverse of D-curve
  9. Linear D-Curve
    Constant slope elasticity not constant. High p low Qs-- Elastic Low p High Qd-- inelastic
  10. Midpoint Method
    Percent change in Qd= Change in Qd/.5(Q1+Q2)
  11. Why use Midpoint?
    • pt. method normalizes through bu initial point
    • Midpt. is less biased equal-- weigh equally-> P1and P2 and Q1Q2
    • Reversing method doesnt change Ed
  12. Determinants of Elasticity
    • Availabillity of Subtitutes
    • Habit formation
    • Income-- Small portion(gum) v large portion
    • Time (longer or sorter time horizon)
    • Necessity v Luxury
    • Def. of Mkt. Broad v narrow Toyota v Red Toyota Prius
  13. Income elasticity of Demand
    %change in Qd/ %change in Y(income) Inferiors are negatively elastic
  14. Cross price elasticity
    %change of Q of good 1/ % change in price of good 2 In the example above, the two goods, fuel and cars(consists of fuel consumption), are complements; that is, one is used with the other. In these cases the cross elasticity of demand will be negative, as shown by the decrease in demand for cars when the price of fuel increased. In the case of perfect complements, the cross elasticity of demand is negative infinity.Where the two goods are substitutes the cross elasticity of demand will be positive, so that as the price of one goes up the demand of the other will increase. For example, in response to an increase in the price of carbonated soft drinks, the demand for non-carbonated soft drinks will rise. In the case of perfect substitutes, the cross elasticity of demand is equal to infinity.
  15. Law od Supply
    Direct relationship between P and Qs
  16. Determinants of Supply
    • Price of inputs
    • Price of Substitutes
    • Technology
    • Expecations
    • Government policies
    • Number of Sellers
  17. Problem with Price Ceiling
    • Shortages lead to non-market sanctioned ways to distribute goods
    • black market discrimination other fees 1st come 1st serve
  18. Problems with Pf
    What to do with the surplus
  19. 2 types of profit
    • Economic- TR-explicit-implicit
    • Accounting-TR-Explicit
  20. Production Function
    Mathematical r graphical relationship between inputs and outputs
  21. Cobb Douglas Production Function
    Relationship between Q and inputs (K,L)
  22. Law of Diminishing Marginal Product
    If equal amounts of an input (labor) is added and the quanitity of other iputs resulting increase in output will decrease at some point
  23. profit =?
    TR-TC or Q(P-ATC)
  24. SR shudown if?
  25. LR Shutdown?
  26. Tax incidence
    Actual division of the burden of a tax between buyers and sellers
  27. Per unit tax equation
  28. Tax burden rests more heaveilly on the more blank group
  29. Ad-Valorem:
    tax that is a percentage of the value
  30. Laffer Curve
    Tax rev vs t size
  31. PeM=?
Card Set
ECON 211 Final