question
quantity demanded
answer
the amount of a good that buyers are willing and able to purchase (based on their income and prices in a given time period)
question
negative relationship
answer
as one variable goes up, the other goes down
question
positive relationship
answer
both variables go up
question
law of demand
answer
as the price of a good increases, quantity demanded falls (holding all else constant)
question
ceteris paribus
answer
holding all else constant
question
why is the demand curve downward sloping?
answer
law of diminishing marginal benefit / substitution effect / income effect
question
law of diminishing marginal benefit
answer
as more units of a good are consumed, benefits from additional units increase at a decreasing rate
question
substitution effect
answer
the change in quantity demanded of a good that results from a change in price, making that good more or less expensive relative to other goods (substitute goods)
question
income effect
answer
the change in demand for a good caused by a change in the consumer's purchasing power (caused by change in income of consumers)
question
quantity supplied
answer
the amount of a commodity that a firm plans to sell for a given price in a given time period
question
law of supply
answer
as the price for which a good can be sold at increases, the quantity of the good that is supplied will increase (holding all else constant)
question
market equilibrium
answer
when quantity demanded equals quantity supplied
question
equilibrium price
answer
the price that puts the market for a good or service into equilibrium (balances quantity demanded and quantity supplied)
question
equilibrium quantity
answer
quantity of the good/service traded at the equilibrium price
question
movement along the curve comes from...
answer
a change in price
question
shift in the demand curve comes from...
answer
changes in income / prices of related goods / changes in preferences / changes in population / expected future prices
question
complementary good
answer
things people consume together (tea and honey)
question
substitute goods
answer
goods people consume instead of other goods (coffee and energy drinks)
question
normal good
answer
as consumer income rises, demand for the good rises
question
inferior good
answer
as consumer income rises, demand for the good falls
question
surplus
answer
when the price is above the equilibrium
question
when price is below equilibrium...
answer
market forces push price up
question
shift in supply curve comes from...
answer
price of inputs / technological changes / number of firms in market / expected future prices
question
shifts from price of inputs
answer
as input price goes UP, supply curve shifts to the LEFT
question
shift from technological changes
answer
as technology increases, making it easier to produce a good, supply curve shifts to the RIGHT
question
shifts from number of firms in market
answer
as number of firms goes UP, supply shifts to the RIGHT
question
shifts from expected future prices
answer
as future prices go UP, supply shifts to the RIGHT
question
price ceiling
answer
maximum price set by law that a good or service can be sold for
question
in order to binding, price ceilings have to be _____ equilibrium
answer
below
question
price floor
answer
minimum price, set by law, that a good or service can be sold for
question
in order to be binding, price floors have to be _____ equilibrium
answer
above
question
elasticity
answer
how much an independent variable reacts to a change in a dependent variable
question
elasticity of demand
answer
% change in quantity demanded / % change in price
question
elasticity of demand is always...
answer
negative
question
elastic demand
answer
absolute value of elasticity of demand is greater than 1 (large consumer reaction relative to price change)
question
inelastic demand
answer
absolute value of elasticity of demand is less than 1 (small consumer reaction relative to price change)
question
unitary elastic demand
answer
absolute value of demand is equal to 1
question
total revenue =
answer
Price x Quantity
question
price and total revenue move in same direction if...
answer
demand is inelastic
question
price and total revenue move in opposite directions if...
answer
demand is elastic
question
elasticity of demand curve is downward sloping because...
answer
law of demand
question
slope does NOT equal...
answer
elasticity
question
factors that influence elasticity of demand:
answer
availability of close substitutes / amount of time consumers have to adjust / percentage of ones budget spent on the good
question
elasticity of supply =
answer
% change in quantity supplied / % change in price
question
elasticity of supply is always...
answer
positive
question
elastic supply
answer
occurs when absolute value of elasticity of supply is greater than 1
question
inelastic supply
answer
occurs when absolute value of elasticity of supply is less than 1
question
income elasticity =
answer
% change in demand / % change in income
question
positive income elasticity means...
answer
normal good
question
negative income elasticity means...
answer
inferior good
question
firms
answer
organizations that turn inputs into outputs
question
advantages of firms:
answer
firms reduce transaction costs, and allow for use of mass production techniques
question
transaction costs
answer
costs associated with acquiring an input beyond the monetary cost of buying it
question
economies of scale
answer
as a firm's level of output increases, average cost of production decreases
question
disadvantages of firms:
answer
principal agent problem (conflict on priorities between workers (agents) and owners (principals) )
question
economic profit
answer
net income for a firm that includes implicit costs (explicit and implicit)
question
accounting profit
answer
net income for a firm that doesn't include implicit costs (just explicit)
question
fixed inputs
answer
inputs whose level is fixed and can't be changed quickly
question
variable inputs
answer
inputs whose level can be changed quickly
question
long run
answer
period long enough for all input levels to be adjusted
question
short run
answer
period of time in which 1+ input is stuck at its current level
question
production in short run:
answer
total product, marginal product of an input, average product of an input
question
total product (TP)
answer
maximum amount of output produced for a given level of inputs
question
marginal product of an input
answer
extra amount of output generated by adding one more unit of (variable) input
question
average product of an input
answer
number of units of output per unit of input
question
average product of labor =
answer
total product (TP) / labor (L)
question
average product of kapital =
answer
total product (TP) / kapital (K)
question
marginal product of labor
answer
how many more units of output (widgets) we'll get for a marginal increase in labor
question
Total Fixed Cost (TFC)
answer
Costs that don't change as Q (output) changes
question
Total Variable Cost (TVC)
answer
Costs that do change as Q (output) changes
question
Total Cost (TC) =
answer
TFC + TVC
question
Average Fixed Cost (AFC)
answer
TFC / Q
question
Average Variable Cost =
answer
TVC / Q
question
Average Total Cost =
answer
TC / Q OR AFC + AVC
question
Marginal Cost
answer
Extra cost of producing just one more unit of output
question
golden rule for short run profit maximization
answer
produce until MB of one more unit = MC
question
shirking
answer
being irresponsible at work
question
curves of MC graph is...
answer
U-shaped
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
