ECON: Unit 2: Ch 6

Question 1

supply and demand related

Answer 1

AKA equilibrium price

• when quantity demanded = quantity supplied
• determined through demand and supply schedule where QS = QD, or demand and supply graph where the D curve and the S curve intersect
• the equilibrium price can change

Question 2

what happens to the price if the D curve shifts

Answer 2

Right…price increases

left…price decreases

Question 3

what happens to the price if the S curve shifts

Answer 3

right. ..price decreases

left. .price increases

Question 4

if the price is not at equilibrium…

Answer 4

above: there will be surplus, more supply than demanded
- the Price will be lowered to sell more goods
below: there will be a shortage, more demanded than supplied, the price will be raised until fewer people can afford it

Question 5

demand schedule

Answer 5

consumers are willing to buy at various prices

Question 6

supply schedule

Answer 6

sellers are willing to sell at various prices

Question 7

equilibrium

Answer 7

balance between price and quantity

Question 8

disequilibrium

Answer 8

quantity supplied does not equal quantity demanded

-can produce excess demand or excess supply

Question 9

gov intervention to help disequilibrium

Answer 9

price ceiling: a maximum price that can be legally charged for a good ie rent control, to improve competition, prevent monopolies, make a good more affordable, creates shortage QD-QS
price floor: minimum for a good or service ie minimum wage, to encourage economic growth, will always be above market price, creates surplus QS-QD

Question 10

factors of changes in market equilibrium

Answer 10

shift in entire demand curve or shift in entire supply curve

• change in price: because of advance in technology, gov tax, subs, change of price of factors of prod
• a shift in the supply curve will change the equilibrium price and quantity
• changes as market conditions change
• retailers are constantly searching for a new equilibrium and consumers recognize the searching by the frequent price changes, sales

Question 11

finding a new equilibrium

Answer 11

if excess supply is present the price will fall to a point where QS = QD

Question 12

a fall in supply…

Answer 12

ie a strike–increase the price, decrease in quantity demanded

Question 13

changes in quantity demanded

Answer 13

• can be rapid and unexpected
• search costs: the financial and opportunity costs consumers pay in searching for a good or service ie driving, calling around
• return to equilibrium by increasing or decreasing price

Question 14

supply

Answer 14

the willingness and ability to produce a particular item at a specified price and time

• Quantity supplied varies with price of item
• is a direct relationship

Question 15

law of supply

Answer 15

• offer more supply at higher prices

- supplies will normally offer more for sale at higher prices and less at lower prices

Question 16

quantity supplied

Answer 16

amount producers bring to market at any given price

• change in amount offereed for sale in response to change in price
• movement along supply curve
• change in QS = change in price

Question 17

change in supply

Answer 17

• cost of resources
• productivity
• technology
• taxes, subsidies, regulations
• expectations about future price, increase price is current decrease supply, decrease price is current supply increase
• number of sellers
• disasters

Question 18

elasticity of supply

Answer 18

measure of way in which quantity supplied responds to change in price

• increase price is increase in output…elastic
• increase price is decrease in output…inelastic
• price is same as output…unit elastic
• use coefficient method (%changeQS/%changeP)

Question 19

determinants of supply elasticity

Answer 19

• nature of production
• can adjust quickly to new prices= elastic
• # of subs has no bearing on supply elasticity/ability to delay/portion of income `

Question 20

the production function

Answer 20

shows how output changes when amount of a single variable input changes while all other inputs are held constant

Question 21

stages of production

Answer 21

1. increasing marginal returns: marginal product of each additional worker increases
2. decreasing marginal returns: output increases at a diminishing rate as more variable inputs are added
3. negative marginal returns: when marginal products of additional workers is negative

Question 22

marginal product

Answer 22

the extra output caused by adding one more unit of variable input

Question 23

measures of cost

Answer 23

fixed costs, variable costs, total cost, marginal cost

Question 24

fixed cost

Answer 24

AKA overhead

• costs that an organization incurs even if there is little or no activity
• ie salaries paid, interest, tax, gradual wear and tear on capital goods

Question 25

variable cost

Answer 25

• costs that change when the business rate of operation or output changes
• associated with labor and raw materials
• typically largest cost is labor

Question 26

total cost

Answer 26

sum of fixed and variable cost

Question 27

marginal cost

Answer 27

• extra cost incurred when producing 1 more unity of output

- more useful–more so than total cost because it helps with profit maximization