supply and demand Flashcards
(39 cards)
economies of scale
average cost decreases as the number of units produced increases
diseconomies of scale
average cost increases as the number of units produced increases
cost advantages (bulk discount)
large firms can purchase inputs on more favorable terms.
labour specialization
you can hire people to do specific things - finding the best match
fixed costs
doesn’t change with the number of units you produced
- research about a new iphone, restaurant rent despite customers
(you spend the money to have it, and after than you can produce as many goods as you want)
demand advantages
value rises with the number of users. (tiktok wouldn’t be fun with less people)
what does the demand curve represent?
represents the quantity demanded at different prices
quantity demanded is…
the quantity that buyers are willing and able to purchase at a particular price
consumer surplus
consumer gain from the transaction
max price you’re willing to pay - market price
total consumer surplus
the big triangle (the price, max willing price, quantity sold)
when demand increases….
upward right
what may cause increase in demand?
price of substitutes, price of compliments
normal goods
demand goes up as income goes up
inferior goods
demand goes up as income goes down
inelastic goods
quantity demanded changes a little with price change
elastic goods
quantity demanded changes a lot with price change
inelastic goods are….
few competitive substitutes, time horizons, category
MR > MC
you are not profit maximizing, producing more will give you more money
MC > MR
you are losing money. each additional unit costs you more than you’re earning
MR is the …
straight line
MC is the…
curved line
supply curve
shows how much sellers are willing to supply at different prices (arabia canada example)
producer surplus
market prices - minimum price at which producers would be willing to sell at a given quantity
when supply increases….
down to the right (because greater quantity supplied at same price)
