Elasticities
Demand is inelastic if the absolute value of the price elasticity of demand is
What is less than 1
What are the 4 factors of production
Land, Labor, Capital, Management
What are all the goods and services that we sell to foreign countries?
What are exports?
how to you find total surplus
CS + PS
Insulin would be an example of a _____ good?
What is Inelastic?
When the elasticity is equal to 1, it is _____
What is unit elastic?
shows the relationship between the quantity of inputs used to produce a good on the x axis and the quantity of output of that good on the y axis
production function
Which has a greater dollar amount, US imports or US exports?
US imports
What is the maximum amount that a buyer will
pay for a good or service
Willingness to pay
What are some key differences between short run and long run
Short run- sometimes produce at minimum point, at least one fixed variable
Long Run- almost always produce at minimum point (where mc cross ATC, AVC) Can change everything
What are the 5 factors that determine price elasticity of demand, describe each one?
1. The Existence of Substitutes: The more substitutes that exist for a good, the more responsive consumers will be to a change in its price.
2. The Percentage of a Person’s Total Budget Devoted to the Purchase of that Good: The larger the percentage of your budget devoted to an item, the more price elastic its demand will be.
3. The Time Allowed for Adjustment: The longer the time allowed for adjustment to a price
change, the more that consumers will react.
• The longer any price change persists, the greater the elasticity of demand, other things held constant.
4. Necessity vs. Luxury: The more a person needs a good or service, the less elastic the item is.
(Diabetes drugs are inelastic and yachts are elastic) Factors that Determine the Price Elasticity of Demand (cont.)
5. Definition of the Market: How narrowly defined the market – the narrower the market, the more elastic demand
What is the equation used to find marginal product of labor?
What is ∆Q/∆L or the slope of the production function
Why is trade important
It allows for specialization so countries can consume more than they would normally be able to produce.
Consumer surplus is calculated by finding everything above the ______ line, but with in the _____ curve
price, demand
What is the ability to produce more output from given inputs than other producers can
Absolute Advantage
Using the midpoint formula calculate price elasticity of demand between $7 for 15 units demanded and $8 for 10 units demanded?
[(Q2-Q1)/((Q2+Q1))/2] / [(P2-P1)/((P2+P1)/2)]
[(10 – 15) / ((10 + 15) / 2)] / [(8 – 7) / ((8 + 7) / 2)] = [(-5 / 12.5) / (1 /7.5)]
= [-.4 / .133] = -3.00
What is the profit maximizing point?
What where MR=MC or where MR and MC are the closest but MR>MC
What is the difference between absolute and comparative advantage?
Absolute Advantage: The ability to produce more output from given inputs than other producers can
Comparative Advantage: can produce good or service at lower opportunity cost
If the minimum amount a producer is willing to accept for a good or service is $200, the maximum amount any consumer would pay for the item is $150, and the market price is $175, what is the consumer/producer surplus.
There is no surplus, because no sale is made
Where does Constant Returns to Scale occur
ATC stays the same as Q increases. Flat portion of long-run average total cost curve
The elasticity of demand for Dr. Pepper is equal to .7
If Dr. Pepper decided to increase their prices would quantity demanded by consumer change.
No the good is inelastic
If quantity changes from 4 to 6, the TC for 4units is 200, and MC = 75 what is the TC for 6 units.
What is 350?
Chili can produce 5 thousand tons of coffee beans a year and 3 thousand pounds of chocolate, Brazil can produce 6 thousand tons of coffee beans and 5 thousand pounds of chocolate. Who has the comparative advantage in producing Chocolate?
Brazil 6 thousand tons of coffee / 5 thousand pounds of chocolate = 1.2 / 1
Brazil gives up 1.2 thousand tons of coffee for every 1 thousand pound of chocolate
Chili 5 thousand tons of coffee/ 3 thousand pounds of chocolate = 1.7 / 1
Chili gives up 1.7 thousand tons of coffee for every 1 pound of chocolate
Brazil has the comparative advantage in producing Chocolate.
If the minimum amount a producer is willing to accept for a good or service is $45, the maximum amount any consumer would pay for the item is $55, and the market price is $50 what is your consumer/ producer surplus.
$5
Why do the TC curve and the TVC curve change at the same variable?
Fixed cost are constant and the only difference between TC and TVC