# ECON 211 FINAL

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1. Wealth of the Nations
2. Positive Economic Statement
I make 8 dollars an hour
3. Normative economic statement
The minimum wage should be \$8 an hour
4. Law of demand
indirect negative inverse relationship between price and Qd
5. Determinants of Demand
• Price of other Goods
• Tastes/ Preferences
• Income/Wealth
• Quality
• Expectation of price change
6. Price elasticity
sensitivity of Qd to P
7. Point Method Equation
(Q2-Q1)/Q1 (P2-P1)/P1
8. Ed is related to what?
Inverse of D-curve
9. Linear D-Curve
Constant slope elasticity not constant. High p low Qs-- Elastic Low p High Qd-- inelastic
10. Midpoint Method
Percent change in Qd= Change in Qd/.5(Q1+Q2)
11. Why use Midpoint?
• pt. method normalizes through bu initial point
• Midpt. is less biased equal-- weigh equally-> P1and P2 and Q1Q2
• Reversing method doesnt change Ed
12. Determinants of Elasticity
• Availabillity of Subtitutes
• Habit formation
• Income-- Small portion(gum) v large portion
• Time (longer or sorter time horizon)
• Necessity v Luxury
• Def. of Mkt. Broad v narrow Toyota v Red Toyota Prius
13. Income elasticity of Demand
%change in Qd/ %change in Y(income) Inferiors are negatively elastic
14. Cross price elasticity
%change of Q of good 1/ % change in price of good 2 In the example above, the two goods, fuel and cars(consists of fuel consumption), are complements; that is, one is used with the other. In these cases the cross elasticity of demand will be negative, as shown by the decrease in demand for cars when the price of fuel increased. In the case of perfect complements, the cross elasticity of demand is negative infinity.Where the two goods are substitutes the cross elasticity of demand will be positive, so that as the price of one goes up the demand of the other will increase. For example, in response to an increase in the price of carbonated soft drinks, the demand for non-carbonated soft drinks will rise. In the case of perfect substitutes, the cross elasticity of demand is equal to infinity.
15. Law od Supply
Direct relationship between P and Qs
16. Determinants of Supply
• Price of inputs
• Price of Substitutes
• Technology
• Expecations
• Government policies
• Number of Sellers
17. Problem with Price Ceiling
• Shortages lead to non-market sanctioned ways to distribute goods
• black market discrimination other fees 1st come 1st serve
18. Problems with Pf
What to do with the surplus
19. 2 types of profit
• Economic- TR-explicit-implicit
• Accounting-TR-Explicit
20. Production Function
Mathematical r graphical relationship between inputs and outputs
21. Cobb Douglas Production Function
Relationship between Q and inputs (K,L)
22. Law of Diminishing Marginal Product
If equal amounts of an input (labor) is added and the quanitity of other iputs resulting increase in output will decrease at some point
23. profit =?
TR-TC or Q(P-ATC)
24. SR shudown if?
TR<TVC OR P<AVC
25. LR Shutdown?
TR<TC OR P<ATC
26. Tax incidence
Actual division of the burden of a tax between buyers and sellers
27. Per unit tax equation
D-t=s
28. Tax burden rests more heaveilly on the more blank group
inelastic