Price Effect
how much revenue is gained/lost
from a price increase/decrease
Volume Effect
how much of the revenue is lost/gained, because that price increase/decrease caused a decrease/increase in
quantity sold
Consumer surplus
Value captured by customers
CS Equation
WTP - Price
Profit
Revenue - Cost
Producer surplus
Value captured by producers
P Equation
Producer - Cost
Value capture
Benefit - Cost
Opportunity Cost
Benefit forgone when choosing one opportunity over another
Inferior goods
Goods for which demand decreases when income increases (or increases when income decreases)
Normal goods
Goods for which demand increases when income increases, and vice versa
Subtitute goods
Goods that replace each other - when the price of one goes up, the demand for the other increases
Complementary goods
Goods that are used together. When the price of one increases, demand for both often decreases
Price effect formula
Change in price (new price - old price) * new quantity
Cost Benefit Principle
Making choices that benefit you, not cost
Economic Cost
Explicit financial cost (how much it costs to go somewhere or do something) + opportunity cost (how much you could make going to work)
Sunk-Cost Fallacy
Costs that have already been incurred and can’t be recovered
T
Tastes/preferences
R
Related goods
I
Income of Consumers
N
Number of consumers
E
Expectations of future prices
Elasticity
Measures responsiveness to price changes
Inelastic
People are less responsive to price changes
