1. Chapter Four

2. Total Revenue Price x Quantity = Total Revenue (TR) $10 x 100 = $1,000 P $10 100 Q SDSD

3. Marginal Utility Additional satisfaction received beyond what the total satisfaction already is

4. The Law of Diminishing Marginal Utility The additional satisfaction one receives from further consumption will fall at some point

5. When Income Changes There is a Shift in the Demand Curve

6. Elasticity Generally how responsive economic agents are to changes in circumstance. How responsive one variable is to changes in another.

7. Price Elasticity of Demand How responsive consumers are to changes in price. % Qd / %P = (Qd / Qd) / (P / P) Elastic > 1 Consumers are responsive Unit Elastic = 1 Balanced response Inelastic < 1 Consumers are unresponsive

8. Determinants of Price Elasticity: the influence of substitution DEMAND 1. In the long run the demand curve is more elastic e.g. ed for gas during the 70s 2. The less of a necessity, the more elastic is the demand curve, e.g., insulin vs. cheesecake 3. The more narrow a good is defined, the more elastic is the demand curve, e.g., cigarettes vs. Marlboro

9. Supply 1. Instantaneous, or momentary, supply es < 1 2. Short run supply curve is more elastic because substitution is possible 3. Long run supply curve is very elastic

10. Price Elasticity of Supply % Qs / %P = (Qs / Qs) / (P / P) Elastic > 1 Firms are responsive Unit Elastic = 1 Balanced response Inelastic < 1 Firms are unresponsive

11. Where do households spend most? Households spend about 40% on housing