Core college microeconomics concepts and formulas beyond the AP level.
38 cards · basic cards · AI-written, checked twice. Edit anything.
- What does price elasticity of demand measure?
- The responsiveness of quantity demanded to a change in price, calculated as percent change in quantity demanded divided by percent change in price.
- ____ is calculated as the percent change in quantity demanded divided by the percent change in price.
- Price elasticity of demand
- What is income elasticity of demand?
- The responsiveness of quantity demanded to a change in consumer income, measured as percent change in quantity demanded divided by percent change in income.
- What is cross-price elasticity of demand?
- The responsiveness of quantity demanded of one good to a change in the price of another good, measured as the percent change in quantity of one good divided by the percent change in price of the other.
- What is arc elasticity and when is it used?
- A measure of elasticity calculated using the midpoint method to handle large price changes. It avoids the problem of elasticity differing depending on direction of movement.
- Define utility in microeconomic terms.
- The satisfaction or well-being that a consumer receives from consuming a bundle of goods and services.
- What is marginal utility?
- The additional satisfaction gained from consuming one more unit of a good, equal to the change in total utility divided by the change in quantity.
- Define an indifference curve.
- A curve showing all combinations of two goods that provide the consumer with the same level of utility or satisfaction.
- What is the marginal rate of substitution (MRS)?
- The rate at which a consumer is willing to trade one good for another while maintaining the same level of utility, equal to the negative slope of the indifference curve.
- The budget constraint for a consumer with income I, buying good X at price Px and good Y at price Py, is written as ____.
- I = Px*X + Py*Y
- At consumer optimum, what condition must hold between marginal utilities and prices?
- The ratio of marginal utilities equals the ratio of prices: MUx/MUy = Px/Py, or equivalently MUx/Px = MUy/Py.
- What does the Slutsky equation decompose?
- The total change in quantity demanded into a substitution effect (due to relative price change) and an income effect (due to change in purchasing power).
- Define the income effect in response to a price change.
- The change in quantity demanded that results from a change in real purchasing power following a price change, holding relative prices constant.
- Define the substitution effect in response to a price change.
- The change in quantity demanded that results from a change in the relative price of goods, holding purchasing power (utility) constant.
- What is a production function?
- A mathematical relationship showing the maximum quantity of output that can be produced from given quantities of inputs at a given level of technology.