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- Washington
- University of Washington - Seattle Campus
- Economics
- Economics 300
- Borgo
- Midterm 1 Practice
Midterm 1 Practice
Economics 300 with Borgo at University of Washington - Seattle Campus
About this deck
By: Andrew Rodriguez
Textbook: Microeconomics: Theory & Applications with Calculus & MyEconLab Student Access Code Package (2nd Edition)
Created: 2011-07-15
Size: 41 flashcards
Views: 69
Textbook: Microeconomics: Theory & Applications with Calculus & MyEconLab Student Access Code Package (2nd Edition)
Created: 2011-07-15
Size: 41 flashcards
Views: 69
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Law of Demand
Holding all other things constant, the quantity demanded of a good should decrease if its price increases, and vice versa.
∂Qd / ∂P < 0
Market Equilibrium
Where supply and demand intersect.
Qe = Qs = Qd
Firms will lower or raise prices to reach equilibrium point.
What happens to equilibrium price when only the demand curve shifts upward (downward)?
Price and Quantity increase (Price and Quantity Decrease).
What happens to equilibrium price when only the supply curve shifts upward (downward)?
Price increases, quantity decreases (Price decreases, quantity increases).
Elasticities describe...
Percentage changes in one variable given a 1% increase of another variable.
Ezx = ( ∆z /z) / (∆x/x)
If ∣Ezx ∣ = ∞ then...
z is "perfectly elastic" with respect to x.
If ∣Ezx ∣ = 1 then...
z is "elastic" with respect to x.
If 1 > ∣Ezx ∣ > 0 then...
z is "unit elastic" with respect to x.
If ∣Ezx ∣ = 0 then...
z is "perfectly inelastic" with respect to x.
Price elasticity of demand (∊)
∊ = EQdp = (∂Qd/ ∂P) x (P / Qd) < 0
Should always be negative.
If ∊ < -1 then...
Demand is elastic.
If -1 < ∊ < 0 then...
Demand is inelastic.
A steeper demand curve means...
It is more inelastic (large changes in price still only give small changes in quantity).
A flatter demand curve means...
It is more elastic (small changes in price equate to large changes in Quantity).
Consumer Theory
- Consumers have fixed tastes in preferences that determine how much utility they derive from consuming different bundles.
- Choices are constrained by prices, income, and other factors.
- Consumers choose bundles to maximize their own utility ST constraints.
Indifference Curve
A line passing through a set of consumption bundles that consumer is indifferent between. The shape of curves depend on consumers preferences.
Indifference Map
A complete set of indifference curves, with one curve passing through every possible bundle.
Properties of Indifference Curves
- Bundles on IC's further from the origin are preferred to bundles closer to the origin.
- IC's cannot cross.
- IC's cannot slope upward or be "thick" (can only be one bundle thick).
- IC's are convex at the origin.
Utility function measures...
Consumer satisfaction out of the different bundles you can consume.
Marginal Rate of Substitution (MRS)
Rate at which a consumer is ready to give up one good in exchange for another good while maintaining the same level of utility.
(dY)/(dX) = (-∂U/∂X)/(∂U/∂Y) = - (MUx) / (MUy)
Marginal Rate of Transformation (MRT)
Slope of the budget line.
- (Px / Py)
Changes in Income shift the budget line...
In a parallel fashion (both intercepts are changed).
Changes in prices cause the budget line to...
Rotate about one of the intercepts.
Decrease in Pc ... (c on x-axis)
Make budget line flatter (move farther away form origin).
Increase in Pc ... (c on x-axis)
Make budget line steeper (move closer to the origin).
Increase in Pb ... (b on y-axis)
Make budget line flatter (move further from origin).
Decrease in Pb ... (b on y-axis)
Makes budget line steeper (moves closer to origin).
Interior Solution
When the maximization solution is in the interior of the IC.
Consumers Tangency Condition
Where MRS = MRT
- (MUc / MUb) = - (Pc / Pb)
All goods cannot be ______ at the same time.
Inferior.
Giffen Good
Disobeys the law of Demand (i.e. Pc ↑ but Qd ↑). These do not happen in real life.
Total Effect
Substitution Effect + Income Effect
The change in the quantity demanded of a good when a good's price changes.
Substitution Effect
The change in the quantity demanded of a good when a good's price changes, holding all other prices and the consumers utility constant.
Income Effect
The change in quantity demanded of a good because of a change in income, holding prices constant.
This effect always obeys the law of demand
Substitution effect.
For a normal good IE _____ SE
Reinforces
For inferior goods IE _____ SE
Counteracts
About this deck
By: Andrew Rodriguez
Textbook: Microeconomics: Theory & Applications with Calculus & MyEconLab Student Access Code Package (2nd Edition)
Created: 2011-07-15
Size: 41 flashcards
Views: 69
Textbook: Microeconomics: Theory & Applications with Calculus & MyEconLab Student Access Code Package (2nd Edition)
Created: 2011-07-15
Size: 41 flashcards
Views: 69
About StudyBlue
STUDYBLUE makes things that make you better at school.
Things like online flashcards with photos and audio.
Things like personalized quizzes and friendly reminders about when (and what) to study next.
Think of it as a digital backpack™: access to all of your study materials online and on your phone.
STUDYBLUE exists to make studying efficient and effective for every student, for free. Join us.
“I have used this website for three exams, and I see a huge difference in my test results.”
Naj
Naj