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ECON Test 2

Mrkt efficiency, Elasticity, Mrkt failure, Utility and Marginal Utility

TermDefinition
Free Markets (blank) their market efficiency Free Markets Maximize their market efficiency.
Consumer surplus + Producer surplus = total surplus
total surplus total economic benefit
Dead weight loss economic loss caused by floor or cieling
At equilibrium, is there dead weight loss? No
A price ceiling causes.... A shortage for producers, surplus for consumers
A price floor causes.... A surplus for producers, shortage for consumers
Allocative efficiency marginal cost= Marginal benefit, EQ
Welfare Economics measures well-being of market participants and how changes in the market affect well-being.
Producer surplus More money made by producers
Consumer surplus Money saved by consumers
Elastic small change to 1 variable causes LARGE change in another variable.
Luxury items and substitutes are examples of... Elastic goods EX: steak
Inelastic change in 1 variable causes SMALL change in another variable.
Necessities and compliments are examples of... inelastic goods EX: gas
Price Elasticity of Demand (ED) usually, negative/ either price or quantity must be negative.
Elastic price Demand Income less than price, more time
Inelastic price Demand income greater than price, less time
Positive Cross price elasticity of demand goods x and y are substitutes.
Negative Cross price elasticity of demand goods x and y are compliments.
Cross price elasticity of demand equals zero goods x and y are unrelated.
Income elasticity of demand is greater than zero the good is normal
Income elasticity of demand is less than zero the good is inferior
Income elasticity of demand is greater than one the good is a luxury
Income elasticity of demand is greater than zero but less than one the good is a necessity
Price elasticity of supply will always be... positive
Price elasticity of supply greater than one, supply is elastic
Price elasticity of supply less than one, supply is inelastic
Immediate time period All Quantity is fixed
Short run time period only one Q is fixed
Long run time period all Q is variable.
Asymmetric information Buyer or seller has more info about the product than the other. EX: seller of a used car knows more than the buyer
Externalities supplier produces something that has a side effect on third parties. 3rd party is not paid
Negative Externalities pollution
Positive Externalities landscaping your house increases neighborhood value
Coase's Theorem gov intervention isn't always required to solve externalities. The producer and 3rd party can come to a socially optimal outcome through private negotiation.
Coase's Theorem Conditions 1) property rights well defined: who is the producer? How much is the3rd party affected? 2) Transaction costs are low
Public good is non-rivalrous and non-excludable. EX: driving on a road
Non-excludable good you can't gatekeep, you don't need to pay
Excludable good gatekeep, you have to pay
Non rivalrous good ppl can use it at the same time and it doesnt decrease
Rivalrous good ppl cannot use it at the same time
Utility satisfaction/happiness from the consumption of goods and services
total utility total satisfaction/happiness
marginal utility additional satisfaction
law of diminishing marginal utility utility of a good or service becomes smaller with each extra unity consumed at a given time.
utility maximization getting the greatest overall satisfaction
equal margin principal for utility maximization consumers maximize utility when that allocate their limited income so that margin utility per dollar's spent in their buddle is equal. marginal utility = marginal price
Utility is measured in... Utils per dollar
Budget line shows different combinations of 2 products that can be purchased with given budget and known prices.
The law of diminishing marginal utility starts when? starts after the first unit
Quantity goes up, marginal utility... Marginal utility goes down
Quantity goes down, marginal utility... marginal utility goes up
if Marginal utility of A is greater than marginal utility of B ... buy MORE of A or LESS of B
Created by: c00lKat1237x
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