ECON Test 2 Word Scramble
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| Term | Definition |
| 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 |
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