Studied by 0 people
Looks like no one added any tags here yet for you.
Output Question
Length of time is constant
Input questions
The product or service is the constant
Absolute advantage
the ability to produce a good using fewer inputs than another producer
Comparative advantage
the ability to produce a good at a lower opportunity cost than another producer
PPC (Production Possibilities Curve)
a model that shows alternative ways that an economy can use its scarce resources
What is economics?
Science of scarcity, Study of choices
Microeconomics
the study of the economic behavior and decision making of small units, such as individuals, families, and businesses
Macroeconomics
The study of the economy as a whole
Theoretical Economics
economists use the scientific method to make generalizations and abstractions to develop theories
Policy Economics
Theories are applied to fix problems or meet economic goals
Price
The amount of money exchanged for a good or service
Cost
Amount a seller pays to produce a good
Investment
spending on capital equipment, inventories, and structures, including household purchases of new housing
Capital goods
Consumer Goods
Trade offs
Alternatives that must be given up when one is chosen rather than another
Opportunity cost
the most desirable alternative given up as the result of a decision
Marginal benefit
the gain from doing something one more time
marginal cost
The cost of doing something one more time
Marginal Analysis
(aka: thinking on the margin) making decisions based on increments
Demand
Different quantities of goods that consumers are wiling and able to buy at different prices
What does a demand curve represent?
The inverse relationship between price and quantity demanded.
What is the shape of a demand curve?
Downward sloping.
What do the axes of a demand curve represent?
Price on the y-axis and quantity demanded on the x-axis.
What assumption is made when analyzing a demand curve?
All factors are constant.
What happens if there is an external factor on the demand curve?
The entire curve shifts.
What happens if there a lesser demandon a demand curve?
Shifts left
What happens if there a greater demand on a demand curve?
Shifts right
5 Shifters of Demand:
Tastes and preferences
Number of consumers
Price of Related goods
Income
Future experctations
Tastes and Preferences
the feelings of consumers about the desirability of different goods
E.g more popular = more demand
number of consumers
can change the market demand for a product
What happens to the demand for a product if the price of a substitute good increases?
The demand for the product increases.
What happens to the demand for a product if the price of a complementary good increases?
The demand for the product decreases.
Income (demand curve shifter)
The incomes of consumer changes the demand, but how demands on type of good.
What happens to demand if consumers expect the price to rise in the future?
The demand will increase today.
What happens to demand if consumers expect the price to fall in the future?
The demand will decrease today.
Normal good
a good that consumers demand more of when their incomes increase
Inferior Good
a good that consumers demand less of when their incomes increase
Quantity Demand
the amount of a good that buyers are willing and able to purchase
Supply
The quantity of something that producers have available for sale
Law of supply
Direct relationship between price and quantity supplied
Shifters of Supply
A change in resource price (availability of inputs)
Numbers of sellers
(more sellers = more supply)
(Less sellers = less supply)
Technology (increase efficiency or decreases cost of production)
Changes in taxes (tax decrease supply) ( Increases in subsidies = increase in supply)
Expectations of future profit
Equilibrium price
the point at which the quality demanded and the quantity supplied meet
Equilibrium quantity
the quantity supplied and the quantity demanded at the equilibrium price
Why do all sales and purchases in a market take place at the same price?
a seller would not be willing to sell for significantly less than the amount he knew most buyers were paying
Why does the market price fall if it is above the equilibrium price?
A surplus exists when the price is above equilibrium, which encourages sellers to lower their prices to eliminate the surplus.
Surplus
Excess Supply
Shortage
A situation in which quantity demanded is greater than quantity supplied
What does the law of demand state about consumer behavior when prices decrease?
Consumers buy more of a good when its price decreases.
What does the law of demand state about consumer behavior when prices increase?
Consumers buy less of a good when its price increases.
Which of the following describes the relationship between price and quantity demanded according to the law of demand?
Negative relationship, illustrated by a downward-sloping curve
Which of the following describes the relationship between price and quantity demanded according to the law of supply?
Positive relationship with a upward-sloping supply curve
