Key Economic Principles: Elasticity, Equilibrium, and Market Structures
Key Economic Concepts
Part 1 – Percentage Change & Elasticity
- % Change: ((End Value – Start Value) / Start Value) * 100%
- Midpoint Method: ((End Value – Start Value) / Average of Values) * 100%
Price Elasticity of Demand
(Always positive):
- Determines the steepness of the demand curve.
- % Change in Quantity Demanded / % Change in Price
- If demand is inelastic: price change = small change in demand (essential goods).
- If demand is elastic: small price change = large change in demand (non-essential goods).
Income
Price-Taker Markets and Firm Profit Maximization
The Long-Run Average Total Cost Curve
The long-run average total cost curve is an envelope-shaped curve mapped out by the short-run average total cost curves.
Short-Run Cost Calculations
In the short run, if average variable costs equal $45, average total costs equal $50, and output equals 100, the total fixed costs will equal $500.
In the short run, if average variable cost equals $50, average total cost equals $75, and output equals 100, the total fixed cost must be $2,500.
If fixed cost at quantity
Read MoreKey Concepts in Microeconomics: 25 Essential Questions
Market Economy
1. A market economic system is said to be efficient since:
- (a) It operates without a central authority
- (b) Prices are determined by regulations
- (c) Technological progress reduces costs
- (d) None of the above
Utility and Revenue
2. When we have Marginal Utility of Good X / Price of Good X > Marginal Utility of Good Y / Price of Good Y, utility will increase if:
- (a) Consumption of Good X increases
- (b) Consumption of Good Y decreases
- (c) Consumption of Good X decreases
- (d) Both (a) and (b) are