question
What are the four factors of production?
answer
Land
Labor
Capital (physical)
Entrepreneurship
Labor
Capital (physical)
Entrepreneurship
question
What is any point along the PPC (Production Possibilities Curve) considered?
answer
Any point on the PPC is considered an efficient use of resources.
question
What is any point inside of the PPC (Production Possibilities Curve) considered?
answer
Any point of the inside of the PPC is considered an inefficient use of resources
question
What is any point outside the PPC (Production Possibilities Curve) considered?
answer
Any point outside of the PPC is considered impossible with the current amount of resources but could be a goal for the future.
question
What does the Law of Demand state?
answer
as price INCREASES quantity demanded DECREASES / as price DECREASES quantity demanded INCREASES
question
What could break this (P up and Qd up)? Hint: what would have to happen to the price of the other (substitute) goods?
answer
If the price of the substitute goes up, the consumer will go back to purchasing the original product because that one is then cheaper.
Any time a determinant is changed, the law is broken.
Any time a determinant is changed, the law is broken.
question
What is held constant as you move along the demand curve?
answer
The determinants must be held constant to hold the price constant.
question
How is the market demand curve derived (mathematically)?
answer
Add up (sum up) all original demand curves
question
What does the Law of Supply state?
answer
as price INCREASES quantity demanded INCREASES / as price DECREASES quantity demanded DECREASES
question
How would you show a supply increase due to a factor(s) beyond P and Q (price and quantity)?
answer
Shift the curve to the RIGHT (out)
question
How would you show a supply decrease due to a factor(s) beyond P and Q (price and quantity)?
answer
Shift the curve to the LEFT (back)
question
How would you show a demand increase due to a factor(s) beyond P and Q (price and quantity)?
answer
Shift the curve to the RIGHT (out)
question
How would you show a demand decrease due to a factor(s) beyond P and Q (price and quantity)?
answer
Shift the curve to the LEFT (back)
question
What happens when a price ceiling is placed above equilibrium?
answer
If a price ceiling is placed above equilibrium it will have no effect.
question
What happens when a price ceiling is placed below equilibrium?
answer
If a price ceiling is placed below equilibrium there will be a shortage.
question
As input prices (costs) increase, what happens to supply, demand, Qs and Qd?
answer
Supply: decreases
Demand: constant
Qs: decreases
Qd: decreases
*** If the Qe (quantity equilibrium) goes down from original, Qs and Qd will both decrease
*** If the Qe (quantity equilibrium) goes up from original, Qs and Qd will both increase
Demand: constant
Qs: decreases
Qd: decreases
*** If the Qe (quantity equilibrium) goes down from original, Qs and Qd will both decrease
*** If the Qe (quantity equilibrium) goes up from original, Qs and Qd will both increase
question
At equilibrium:
answer
Qd=Qs
question
Residents of East Village pay $.75 for a loaf of bread but complain that the shelves after 11 am are always empty. What might we call this? What can we say about the price of bread?
answer
This would be considered a shortage. The price of bread is low, so the quantity demanded is greater than the quantity supplied.
question
What assumptions do we make about economic (individual) reasoning?
answer
1. Act in their own best interest
2. Rational thinking
2. Rational thinking
question
The term utility in economics measures what?
answer
The pleasure or satisfaction obtained from a good or service.
question
What is marginal utility?
answer
The change in total utility obtained by consuming (in increments) one additional unit of a good or service.
question
What is total utility?
answer
The amount of satisfaction obtained from entire consumption of a product (when finished consuming).
question
What is the one thing that Janet's marginal utility can't be if she is still eating grapes?
answer
The marginal utility cannot be 0/negative if still consuming a product because you are finished at 0.
question
What is the Utility Maximizing Rule formula (Theory of Consumer Equilibrium)?
answer
The mix of output that maximizes total utility for the limited amount of income you have to spend.
question
How do you solve utility problems where you are comparing how much happiness two products will bring you?
answer
MU/P=MU2/P2
Marginal Utility/Price=2nd Marginal Utility/2nd Price
Marginal Utility/Price=2nd Marginal Utility/2nd Price
question
Which side utilizes the factors of production to make goods and services?
answer
Supply
question
Which side provides goods and services?
answer
Demand
question
How do we define the short run?
answer
The period in which the quantity (and quality) of some inputs cannot be changed.
some fixed (land & capital) and some variable (labor) inputs
some fixed (land & capital) and some variable (labor) inputs
question
Marginal costs rise as marginal productivity _____________?
answer
declines/falls
question
If given the number of workers and average product and need to find total product and marginal product:
answer
1. Multiply # of workers by average product to get the total product.
2. To find MP, subtract the line below from the line above. (10-2=8)
2. To find MP, subtract the line below from the line above. (10-2=8)
question
How to find the TC of a product:
answer
1. Find the TC of the original product by multiplying the price by the quantity. (TC=P x Q)
question
How to find the ATC:
answer
1. Add together the TC and the MC of the next quantity up.
2. Divide the total of the TC+MC by the new quantity to get the Average Total Cost (ATC).
2. Divide the total of the TC+MC by the new quantity to get the Average Total Cost (ATC).
question
Price Ceiling
answer
- maximum that can be charged
- shortage
- Qd greater than Qs
- shortage
- Qd greater than Qs
question
Price Floor
answer
- minimum that can be charged
- surplus
- Qd is less than Qs
- surplus
- Qd is less than Qs
question
Elastic demand formula:
answer
Ed= % change in Qd/ % change in P
question
If E is larger than 1:
answer
Demand is called ELASTIC in the immediate price range.
question
If E is less than 1:
answer
Demand is called INELASTIC.
question
Formula for Marginal Utility:
answer
MU= change in TU/change in Q
question
Short run fixed input examples:
answer
Land-> rent
Capital-> machine
Capital-> machine
question
Short run variable input examples:
answer
Labor and Materials
question
Marginal Physical Product
answer
- is the change in total output that results from employment of one additional unit of input
- MPP= change in total product/change in quantity
- MPP= change in total product/change in quantity
question
Marginal Cost:
answer
- is the increase in total costs associated with a one unit increase in production
- MC= change in TC/ change in Q
- MC= change in TC/ change in Q
question
Average Total Cost
answer
- ATC= AFC+AVC
- ATC= TC/Q
- ATC= TC/Q
question
Average Fixed Cost
answer
AFC= FC/Q
question
Average Variable Cost
answer
AVC= VC/Q
question
If MC is greater than ATC, then
answer
ATC is increasing
question
If MC is less than ATC, then
answer
ATC is decreasing
question
If MC equals ATC, then
answer
ATC is at minimum
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