Comparative Advantage & Trade
The ability to produce a good using fewer inputs than another producer.
What is Absolute Advantage?
If the price elasticity of demand coefficient is greater than 1, the good is this.
What is Elastic?
This elasticity measures how quantity demanded of one good responds to a price change of another good.
What is Cross-Price Elasticity of Demand?
The difference between what a consumer is willing to pay and what they actually pay.
What is Consumer Surplus?
A legal minimum price that is only binding if set above the equilibrium.
What is a Price Floor?
The ability to produce a good at a lower opportunity cost than another producer.
What is Comparative Advantage?
This formula is used to determine elasticity by observing how price changes affect a firm's total earnings.
What is "Change in Price / Change in Quantity Sold"?
If the income elasticity of demand is negative, the good is this.
What is an Inferior Good?
The area above the supply curve and below the market price
What is Producer Surplus?
This is the primary result of a binding price ceiling, such as rent control.
What is a Shortage?
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Goods with many close substitutes tend to have this type of demand elasticity
What is Elastic?
A positive Cross-Price Elasticity coefficient indicates that two goods are this.
What are Substitutes?
The loss of total surplus that occurs when a market is distorted by a tax or price control.
What is Deadweight Loss?
To be "binding" (effective), a price floor must be placed here relative to the equilibrium price.
What is Above?
In a production problem, the formula to calculate opportunity cost is this.
What is "foregone production / chosen production"?
If a price increase leads to an increase in total revenue, the demand is this.
What is Inelastic?
This elasticity measures how sensitive producers are to changes in the market price.
What is Price Elasticity of Supply?
This is maximized when a market is in equilibrium with no externalities.
What is Total Economic Surplus (or Social Welfare)?
An excise tax shifts this curve vertically upward by the amount of the tax.
What is the Supply Curve?
Specialization and trade allow a nation to reach a point of consumption that is located here relative to its PPC.
What is Outside (or Beyond) the PPC?
The elasticity of a perfectly vertical demand curve.
What is Perfectly Inelastic (or Zero)?
In the "Immediate Market Period," the Price Elasticity of Supply is usually this.
What is Perfectly Inelastic?
When demand is perfectly inelastic, this group pays 100% of a new per-unit tax.
Who are the Consumers?
Agricultural price supports are a real-world example of this type of price control.
What is a Price Floor?