Price inelastic demand (1)

Price elastic demand

Perfectly elastic demand curve
Price elasticity of supply
Inferior goods
Income effect of a price Change
Short run elasticity
Elasticity
Perfectly inelastic demand curve
Price-taker (2)
Normal goods
Income elasticity of demand (3)
Substitution effect of a price change
Long-run elasticity

The price elasticity of demand is a measure of the extent to which the quantity
demanded of a good changes when ____ changes and all other influences on
buyers plans remain the same.
-The price of the good
Suppose the price of a movie falls from $9 to $7. Using the midpoint method,
what is the percentage change in price?
- -25%
Demand is elastic if
-Consumers respond strongly to changes in a products price
The price of electric power increased enormously but the quantity demanded
decreased only a little. This response indicates that the demand for electric
power was?
-Inelastic
If substitutes for a good are readily available, the demand for that good is?
-Elastic
If the price elasticity of demand for a good is greater than one, then the demand
for that good with respect to price is ?
-Elastic

If the demand is ______with respect to price, a price increase will ____ total
revenues
-Inelastic, Increase

Terminology
A. Cost
B. Opportunity cost
C. Outlay cost
D. Expense
E. Period cost
F. Full absorption cost
G. Direct cost
H. Indirect cost
I. Variable cost
J. Fixed cost
Description
1. A past, present or future cash outflow.
2. Cost attributed to time intervals.
3. Cost that does not change in proportion to volume changes.
4. The foregone benefit from the best alternative course of action.
5. Cost not directly related to a cost object.
6. Includes all variable and fixed manufacturing costs.
7. Cost that changes directly proportion to a change in volume.
8. A sacrifice of resources.
9. Cost directly related to a cost object.
10. A cost charged (debited) against revenue in an accounting period.
Answers to Matching Questions
A-8; B-4; C-1; D-lO;E-2; F-6; G-9; H-5; 1-7; J-3

If a firm does not maximize profit, it is

A) either eliminated or bought by firms that do maximize profit.

Which of the following is an explicit cost of production?

A) wages paid to workers
B) the electric bill
C) purchases of raw material

A cost paid in money is

C) an explicit cost and an opportunity cost.
An implicit cost
-The normal profit
Normal profit is an implicit cost
Wages are an explicit cost
Economic depreciation is the opportunity cost of owning and using the
firms capital, measured as the change in market value
The return to entrepreneurship, which is what the firms owner could earn running
another business is know as normal profit
Normal profit is part of a firms opportunity cost
A firms total revenue minus its total opportunity cost is called its Economic profit
Economic profit equals total revenue minus total opportunity costs
Cost pain in money is an explicit cost and and an opportunity cost
Implicit Cost
The normal profit
The cost of using capital an owner donates to the business
Opportunity cost of a firm using its own capital is called Economic depreciation
The short run is a time period that is
Too short to change the size of the firms plant
To produce more output in the short run, a firm must employ more of its variable
resources

Correctly describes a total product curve

The curve separates attainable outputs from unattainable outputs
The total quantity of a good produced in a given period is called the
Total product
Marginal product is
The change in total product divided by the increase in labor
The price of elasticity of demand measures
The responsiveness of quantity demanded to a change in price
The less sensitive people are to a change in price the
Smaller the price elasticity of demand
To say that demand is inelastic means that
People are not very responsive to price changes
If demand is unit elastic, then
A 2% increase in price leads to a 2% decrease in quantity demanded
Perfectly inelastic demand means that consumers
will buy a certain quantity, regardless of price
Which of the following would change the quantity supplied for a good
or service?
a change in the price of the good or service
Holding all other things constant, a higher price for ski lift tickets would
Decrease the number of skis sold
An increase in price causes an increase in total revenue when
Demand is inelastic
A firm that is a price taker faces a perfectly
Elastic demand curve
The price elasticity of demand measures
the responsiveness of quantity demanded to a change in price
To day the demand is inelastic means that

People are not very responsive to price changes

If the demand is unit elastic then
A two percent increase in price leads to a two percent decrease in quantity
demanded
At the midpoint on a straight-lined demand curve, demand is
Unit elastic
If demand is perfectly elastic everywhere along the demand curve then
The demand curve is horizontal
Other things equal, demand is more elastic the
Larger the percentage of a total budget that a family spends on the good
The cross elasticity of demand is
The percentage change in the quantity demanded of one good devided by
the percentage change in price of another good
The income elasticity of demand
Can be positive, negative, or zero
If marginal utility is positive but decreasing, total utility is
Increasing
If total utility is decreasing then marginal utility is
Negative
Marginal Utility is
The change in total utility due to a one unit change in the quantity of a
good consumed
Average fixed costs will
Fall as output rises
When the marginal cost curve is above the average cost curve the average cost
curve is
Rising
If the marginal product of an input factor is falling then
Marginal Cost is rising