Consumption and Production
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| What makes a perfect competition market? | show 🗑
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| Law of demand | show 🗑
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| show | Supply slope is always positive
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| Absolute price | show 🗑
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| Relative price | show 🗑
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| Reservation price | show 🗑
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| Demand | show 🗑
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| show | The quantity of a good I'm willing to sell for all prices
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| Factors that affect DEMAND | show 🗑
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| How does the price (1) affect the demand curve? | show 🗑
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| show | The curve shifts to the right if the good is now more liked because for the same prices there are more buyers now. If disliked the curve shifts left, for the same price there are less buyers
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| How does the income (3) affect the demand curve? | show 🗑
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| How does the related goods (4) affect the demand curve? | show 🗑
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| How does the number of consumers (5) affect the demand curve? | show 🗑
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| show | Depending on expectations, future changes in income, future change in price of the good, future complement/substitute going out, future change in number of consumers, will shift the curve right or left depending on the scenario.
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| show | 1. Price
2. Technology
3. Input prices (cost of production)
4. Prices of related goods (substitutes/complements)
5. Nº of producers
6. Expectations
7. Other (industry specific) factors
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| How does the price (1) affect the supply curve? | show 🗑
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| How does the technology (2) affect the supply curve? | show 🗑
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| How does the inut price (3) affect the supply curve? | show 🗑
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| show | Substitutes: if the price of a substitute (y) increases and it becomes more profitable to produce it than x so the x supply curve shifts left. Viceversa
Complements: If complements price increases the supply curve of x shifts to the right. Viceversa
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| How does the nº of producers (5) affect the supply curve? | show 🗑
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| How does the expectations (6) affect the supply curve? | show 🗑
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| How does the other factors (7) affect the supply curve? | show 🗑
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| show | Where the demand and supply curves intersect. It is symbolized by P* and Q*
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| show | Yes, depending on the change the change can affect P*, Q* or both
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| What is the Price Elasticity of Demand? | show 🗑
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| show | A change in Q greater than 1% when price changes 1%.
Elasticity>1
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| show | A change in Q smaller than 1% when price changes 1%.
Elasticity<1.
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| show | 1. Goods with easy substitutes have more elastic demand
2. Necesities lower elasticity whereas luxuries higher elasticity
3. Narrowly defined markets- high easticity/broadly defined markets- lower elasticity
4. Goods higher elasticity over longer time
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| Formula of Price Elasticity of Demand | show 🗑
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| show | Elasticity=1
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| When is total revenue (TR) is maximum? | show 🗑
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| Graphically, how is an elastic curve? | show 🗑
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| Graphically, how is an inelastic curve? | show 🗑
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| When a good is easily substituted, Price Elasticity of Demand is elastic or inelastic? | show 🗑
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| When a good is hardly substituted, Price Elasticity of Demand is elastic or inelastic? | show 🗑
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| What is Income Easticity of Demand? | show 🗑
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| Graphically, how is a perfectly elastic curve? | show 🗑
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| show | Vertical curve
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| show | Case 1: Inelastic demand: P^-> TR^
Case 2: Elastic demand: P^-> TRv
Case 3: Unit elastic: P^->TR reamins constant
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| show | It is a curve with income over quantity, it is positive
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| What is a normal good? | show 🗑
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| show | Using Income Elasticity of demand, when E(m)<0 <=> m^ => Qd v
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| show | 1<E(m)<0
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| show | E(m)>1
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| show | Measures how Q of a good changes when ther price of another good changes
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| show | E(pr)>0 <=> Pr^ => Qr v => Q ^
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| What is a complement? | show 🗑
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| What is he formula for the Income Elasticity of Demand? | show 🗑
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| What is the formula for the Cross Price Elasticity of Demand? | show 🗑
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| show | The change in Q when P changes 1%.
E(supply)= (%change in supply Q)/(%change in price)
E(supply)= 1/slope * P/Q
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| How can we measure the effects of public policies? | show 🗑
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| What is consumer surplus? | show 🗑
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| show | The difference between the amount he sells a product minus the production cost
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| What is a price ceiling? | show 🗑
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| What is a price floor? | show 🗑
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| show | Goverment policy instrument used to raise revenue for public projects and to redistribute income
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| show | The equilibrium price rises, but sellers now get less money so their surplus is demeanished. The supply curve shifts left.
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| show | The demand curve shifts left. Sellers recieve less money and sell less.
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| Is there differences between seller tax and buyer tax? | show 🗑
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| show | Seller or buyer, depends on which side is less elastic
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| show | The budget constraint or budget line is the curve that represents income, price of two goods (x,y) and the quantity I can buy of each of them inside my budget.
Formula is: m=Px*Qx+Py*Qy which expressed in a line ecuation is Qy=(m/Py)-(Px/Py) *x
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| About budget line, what are the gaphical caracteristics? | show 🗑
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| show | If Py increases, (m/Py) v and (-Px/Py) the same.
If Py decreases, (m/Py) and (-Px/Py) ^
If Px increases, (m/Px) and (-Px/Py) v
If Px decreases, (m/Px) and (-Px/Py) ^
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| What are the properties of preferences? | show 🗑
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| show | A preference relation is complete if it allows to order all possible combinations of good and services
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| show | We consider a preference relation transitive if bundles A >~B and B >~C then we can assume that A>~C
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| show | A preference relation is monoton if "the more, the better" applies.
i.e. Bundle A (3,6) > Bundle B (3,5)
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| Properties of preferences, what is Convexity? | show 🗑
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| How do we represent the preference relation? | show 🗑
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| show | In the x/y plane, represents a set of bundles that give the indicidual the same level of satisfaction. So if Bundles A and B are in the same IC then A~B
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| What is the Utility Function u(.)? | show 🗑
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| What is the Marginal Rate of Substitution (MRS)? | show 🗑
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| MRS is higher or lower if x^? | show 🗑
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