New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

Study guide

by: Anthony Ivy

Study guide ECON 202 - 0001

Anthony Ivy

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

from class and book
Introduction To Economics II
Dr. Michael Kelsay
Study Guide
Econ II
50 ?




Popular in Introduction To Economics II

Popular in Economcs

This 6 page Study Guide was uploaded by Anthony Ivy on Monday April 4, 2016. The Study Guide belongs to ECON 202 - 0001 at University of Missouri - Kansas City taught by Dr. Michael Kelsay in Spring 2016. Since its upload, it has received 58 views. For similar materials see Introduction To Economics II in Economcs at University of Missouri - Kansas City.

Similar to ECON 202 - 0001 at UMKC


Reviews for Study guide


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 04/04/16
Study guide­2 Chapter 6­Elasticity Price elasticity of demand ­A demand curve is elastic when an increase in price reduces  the quantity demanded a lot (and vice versa). When the same increase in price reduces quantity demanded just a little, then the demand  curve is inelastic. Price elasticity of demand = the percentage change in quantity demanded divided by the  percentage change in price. Midpoint method­    Average value of x = value of x + final value of x /2 Classification of price elasticity of demand: A good can have a price elasticity as low as zero or as high as infinity. If the |Ed| < 1, the demand curve is inelastic. If the |Ed| > 1, the demand curve is elastic. If the |Ed| = 1, the demand curve is unit elastic. Total revenue: price times quantity demanded (sold).  TR = P × Q When demand is inelastic, the price effect dominates the quantity effect So an increase in price will cause only a slight reduction in the quantity demanded. In this instance, total revenue will rise when the price rises (and vice versa). When demand is elastic, the quantity effect dominates the price effect. So an increase in price will cause significant reduction in the quantity demanded. In this instance, total revenue will fall when the price rises (and vice versa). When demand is unit­elastic, the quantity effect equals the price effect. So an increase in price exactly balances the reduction in the quantity demanded. In this instance, total revenue doesn’t change. 1. The availability of close substitutes is very important. Fewer substitutes makes it harder for consumers to adjust Q when P changes, so  demand is inelastic. Many substitutes? Switching brands when prices change is EASY, so demand is  elastic. 2. Whether the good is a necessity or a luxury also affects the elasticity of demand. For necessities, we do not change Q much when P changes.  For luxuries, we are more sensitive to P changes. 3. The share of income spent on the good matters. We are less sensitive to price changes when the good feels cheap.  We are more sensitive to price changes when the good feels expensive. 4. The length of time elapsed since the price change matters. Less time to adjust means lower elasticity. Over time consumers can adjust their behavior by finding substitutes (making  demand more elastic). The cross­price elasticity of demand measures how sensitive the quantity demanded of good  A is to the price of good B. Cross­price elasticity of demand = For substitutes, cross­price elasticity of demandis positive.   An increase in the price of one brand of cookies will increase the demand for other brands.  For complements, cross­price elasticity of demand is negative. An increase in the price of milk causes a decrease in demand for Oreos. The income elasticity of demand measures how sensitive the quantity demanded of a good is  to changes in income. Income elasticity of demand = The income elasticity of demand can be used to distinguish normal from inferior goods. For normal goods, income elasticityis positive.   For inferior goods, income elasticityis ne ative. Chapter 7 Taxes The incidence of a tax is a measure of who really pays it. Impact on consumers/producers =Deadweight loss­societal loss Tax incidence attempt to analyze­burden of a tax When the price elasticity of demand is low and the price elasticity of supply is high, the burden of an excise tax falls mainly on consumers. When the price elasticity of demand is high and the price elasticity of supply is low, the burden of an excise tax falls mainly on producers. Efficient tax is= Consumption Tax 2 fair tax­ Benefits principle & ability­to­pay Lump­sum tax is the same for everyone, regardless of any actions people take. Income tax depends on income from wages and investments. Payroll tax depends on the earnings an employer pays to an employee. Sales tax depends on the value of goods sold. Profits tax depends on a firm’s profits. Property tax depends on the value of property, such as a home. Wealth tax: a tax that depends on an individual’s wealth. Chapter 8 • The Ricardian model uses the concepts of opportunity cost and comparative advantage. • The opportunity cost of producing something measures the cost of not being able to  produce something else. The Heckscher­Ohlin model (chapter 4) says differences in labor, labor skills, physical capital and land between countries cause productive differences, leading to gains from trade. Tariff­Governments may impose tariffs to raise revenue or to protect domestic industries from  foreign competition Chapter 9 While accounting profit is defined as total revenue minus explicit costs, economic profit is  defined as total revenue minus explicit and implicit costs. Stated otherwise, it is the difference  between the total opportunity cost of production and the total revenue received by a firm. Economic profit is the difference between total monetary revenue and total costs, but total  costs include both explicit and implicit costs. Economic profit includes the opportunity costs  associated with production and is therefore lower than accounting profit. Marginal benefit refers to what people are willing to give up in order to obtain one more unit  of a good, while marginal cost refers to the value of what is given up in order to produce that  additional unit. Additional units of a good should be produced as long as marginal benefit  exceeds marginal cost. Optimal rule­a price­taking firm's profit is maximized by producing the quantity of output at  which the marginal cost of the last unit produced is equal to the market price.  Chapter 10 Rational consumer Budget constraint­represents all the combinations of goods and services that a consumer may  purchase given current prices within his or her given income. Slope of budget constraint­ A=m/p y anB=m/p x The substitution effect measures how much the higher price encourages consumers to use  other goods, assuming the same level of income. The income effect looks at how the price  change effects consumer income, and how much the rise in income will lead to lower demand.


Buy Material

Are you sure you want to buy this material for

50 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Bentley McCaw University of Florida

"I was shooting for a perfect 4.0 GPA this semester. Having StudySoup as a study aid was critical to helping me achieve my goal...and I nailed it!"

Janice Dongeun University of Washington

"I used the money I made selling my notes & study guides to pay for spring break in Olympia, Washington...which was Sweet!"

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."


"Their 'Elite Notetakers' are making over $1,200/month in sales by creating high quality content that helps their classmates in a time of need."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.