UNIT 2 AP MIRCO ECON

Law of demand

price goes down, demand goes up

Law of supply

Direct relationships between price and quantity supplied

Substitution effect

decrease in sales for an item becasue there is a cheaper alternative

income effect

More income, buying more

law of diminishing marginal utility

doing something for the 5th time isnt going to be as good as doing it the first time

normal goods

more income, more buying

inferior goods

less income, more buying

consumer surplus

paying UNDER what you WOULD have paid for a good

producer surplus

selling a good for MORE than they could

production subcity

government giving money to producers to make more of sometihng

elastic demand

sensitive to a change in price

inelastic demand

insensitive to a change in price

marginal utility

how much MORE happiness youre getting from doing something again

CS before tax

ABCD

PS before tax

EFGH

Tax per unit

$4

CS (customer surplus) after tax

B

dead weight loss

DE

total tax revenue to government

ACHF

total spending by buyers

ACHFGI

net revenue to sellers

GI

Amount of tax buyers pay

AC

Amount of tax sellers pay

HF

income elasticity of demand

shows how sensitive a product is to a change in income

FORMULA for income elasticity of demand

% change in quantity/5 change in income

Utility maximizing rule

consumers should attempt to make their utility per dollar equal to the price of the good

cross price elasticity

shows how sensitive a product is to a change in price of another good

EQUATION cross price elasticity

% change in quantity of product B/ % change in price of product A

Price elasticity of supply

Shows how sensitive producersE are to a change in price

EQUATION price elasticiity of supply

% change in quantity/ % change in price

total revenue equation

price x quantity sold= TR

price effect

price up, each unit sold sells a higher price, which tends to raise revenue

Quantity effect

price up, fewer units are sold, tends to lower revenue

6 shifters of supply

price/availability, number of sellers, technology, government action, opportunity cost of alternative, expectation of future profit

shifters of demand

taste/preference, number of consumers, price of related goods, income, future expectations

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SARAH!