Lecture 5 Review Flashcards
(30 cards)
What is the relationship between marginal cost and supply?
Supply is determined by marginal costs and the willingness to supply each additional good.
What happens when there is a surplus in the market?
Prices tend to decrease as suppliers try to sell excess goods.
What happens when there is a shortage in the market?
Prices tend to increase as demand exceeds supply.
Define equilibrium in a market context.
Equilibrium occurs when quantity demanded equals quantity supplied.
What is the opportunity cost of producing more of one good?
The foregone production of another good.
How do marginal benefits affect consumer choice?
Consumers decide based on the additional satisfaction gained from consuming an extra unit of a good.
What factors can shift the demand curve?
Income levels, tastes and preferences, price of related goods, and expectations.
What factors can shift the supply curve?
Production costs, technology, number of sellers, and expectations.
What is a planned approach to distributing resources?
Resources are allocated based on centralized decision-making.
What is a market-based approach to distributing resources?
Resources are allocated through the price mechanism driven by supply and demand.
How does a decrease in income affect inferior goods?
Demand for inferior goods increases as income decreases.
What is the effect of a natural disaster on supply?
Supply decreases, leading to higher equilibrium prices and lower quantities.
What is the marginal benefit of hiring an additional worker?
The additional output or revenue generated by employing one more worker.
What is a budget constraint?
The limit on consumption choices due to limited income.
What is consumer surplus?
The difference between what consumers are willing to pay and what they actually pay.
What is producer surplus?
The difference between the price producers receive and the minimum they are willing to accept.
What is the purpose of a Production Possibility Frontier (PPF)?
To illustrate the trade-offs and opportunity costs of production choices.
What is price elasticity of demand?
The responsiveness of quantity demanded to a change in price.
What is price elasticity of supply?
The responsiveness of quantity supplied to a change in price.
What determines the equilibrium price?
The intersection of supply and demand curves.
What happens to equilibrium when demand increases?
Equilibrium price and quantity both increase.
What happens to equilibrium when supply decreases?
Equilibrium price increases, and quantity decreases.
What is the significance of marginal cost in production?
It determines the cost of producing one more unit of a good.
How is economic efficiency achieved?
When resources are allocated such that marginal benefit equals marginal cost.
