Supply and demand Flashcards
(34 cards)
Economics
Application of technology, guided by economic principles, to the design,
implementation and operation of systems and processes.
Microeconomics
Analysis of the economic behavior of individual decision-making units in a free
market economy.
- Supply and demand of goods and services
- Price and production costs of goods and services
- Objectives (profit, growth, and survival) and competitiveness of business firm
- Theory of production
Macroeconomics
Analysis of aggregate behavior at the national and international levels.
- Level of growth of consumption and income
- Level and trends in prices, wages, and investment
- Government policies and incentives
- Interactions between businesses, government and society, and between
business sectors
Finance
Study of how businesses raise and spend capital
Issues:
* Sources and costs of funds
* Capital markets
* Dividend policies
* Capital budgeting
Capital
Anything that provides value to something
Supply curve
Relationship between the quantity of a good that producers are willing to sell and the price of the good.
demand curve
Relationship between
the quantity of a good that consumers
are willing to buy and the price of the
good.
substitutes
(demand) Two goods for which an increase in the price of one leads to an increase in the quantity demanded of the other.
complements
Two goods for which an increase in the price of
one leads to a decrease in the quantity demanded of the other.
equilibrium price
equilibrium (or market clearing) price
Price that equates the quantity supplied
to the quantity demanded.
free
free No price controls, production
quotas or rationing.
competitive
The actions of individual consumers and suppliers has no effect on the overall state of the market. (as opposed to a single firm, the price is determined by overall supply and demand)
market mechanism
Tendency in a free
market for price to change until the
market clears.
surplus
Situation in which the quantity
supplied exceeds the quantity demanded.
shortage
Situation in which the quantity
demanded exceeds the quantity supplied.
What affects a supply curve shift to the right?
Lower production costs, such as reduced wages, interest charges, or material costs, enable suppliers to sell at lower prices.
What factors can cause a demand curve to shift to the right?
Higher income, changes in consumer preferences, or higher demand for substitute goods.
What is price elasticity of demand?
The responsiveness of the quantity demanded of a good/service to a change in its price, calculated as Ep = %ΔQ / %ΔP.
What are the types of demand elasticity?
Elastic (Ep > 1), Inelastic (Ep < 1), and Unitary (Ep = 1).
What is the law of diminishing marginal returns?
As one input increases while others remain fixed, the output will eventually decrease.
What is the production function?
A function that describes the technically efficient combinations of resources required to produce a product, e.g., Q = 215 + 9S - S². with 1000s
What are fixed resources?
Resources that remain constant over a range of outputs, regardless of production level.
What are variable resources?
Resources that increase with output; more production requires more of these resources.
What is average product (AP)?
Output per unit of input.
