ECON: Unit 2: Ch 6 Flashcards Preview

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Flashcards in ECON: Unit 2: Ch 6 Deck (27):
1

supply and demand related

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

2

what happens to the price if the D curve shifts

Right...price increases
left...price decreases

3

what happens to the price if the S curve shifts

right...price decreases
left..price increases

4

if the price is not at equilibrium...

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

5

demand schedule

# consumers are willing to buy at various prices

6

supply schedule

# sellers are willing to sell at various prices

7

equilibrium

balance between price and quantity

8

disequilibrium

quantity supplied does not equal quantity demanded
-can produce excess demand or excess supply

9

gov intervention to help disequilibrium

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

10

factors of changes in market equilibrium

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

11

finding a new equilibrium

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

12

a fall in supply...

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

13

changes in quantity demanded

-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

14

supply

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

15

law of supply

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

16

quantity supplied

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

17

change in supply

-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

18

elasticity of supply

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)

19

determinants of supply elasticity

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

20

the production function

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

21

stages of production

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

22

marginal product

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

23

measures of cost

fixed costs, variable costs, total cost, marginal cost

24

fixed cost

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

25

variable cost

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

26

total cost

sum of fixed and variable cost

27

marginal cost

-extra cost incurred when producing 1 more unity of output
-more useful--more so than total cost because it helps with profit maximization