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.

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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

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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)

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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.

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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.

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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

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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**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)

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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

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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

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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

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Average Total Cost

answer

- ATC= AFC+AVC

- ATC= TC/Q

- ATC= TC/Q

question

Average Fixed Cost

answer

AFC= FC/Q

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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