4-8 SUPA Econ Test Review

elastic goods

Demand changes drastically when prices change (wants)

inelastic goods

Describes demand that is not very sensitive to a change in price

elasticity

a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants

price sensitive

When the price is very important in the decision about whether or not to buy.

tax burden

a measurement of taxes paid as a proportion of income

tax incidence

the division of the burden of a tax between buyers and sellers

cross price effect

Effect of a change in price in one good on the quantity demanded of another good.

complements

two goods that are bought and used together

substitutes

two goods for which an increase in the price of one leads to an increase in the demand for the other

normal goods

goods that consumers demand more of when their incomes rise

inferior goods

goods that consumers demand less of when their incomes rise

income elasticity of demand

a measure of the responsiveness of the quantity demanded to changes in income, measured by the percentage change in the quantity demanded divided by the percentage change in income

marginal cost

the cost of producing one more unit of a good

normal return

What he/she pay themselves to make it worth staying in business - Its the minimum amount you need to make to stay in business.

Cost Structure

the prices of inputs into production, level of technology, and the environment of production

price takers

firms that take or accept the market price and have no ability to influence that price

average cost

the total cost divided by the quantity produced

total cost

sum of money a firm spends in the process of producing, (Average Cost x Quantity = Total Cost)

Profit

total revenue - total cost

Factors of Production (Factor Market)

Natural Resources, Labor, Capital

Physical Capital

the human-made objects used to create other goods and services

Human Capital

the skills and knowledge gained by a worker through education and experience

process of production

Factors of production are allocated to and then combined in processes of production that apply techniques chosen from available technology.

techniques

all possible ways to produce something

Labor-Intensive Techniques

techniques that use relatively more labor than capital

Capital-Intensive Techniques

techniques that use relatively more capital than labor

Factor Market Supply Shift Variables

Wealth, Preferences, and Alternative opportunities

sunk costs

costs already paod for choices made, payments made in the past stay in the past

Comparable occupations

occupations that have similar requirements in terms of human capital investment, personal responsibility, etc.

derived demand

Companies buy materials used to make products consumers want to buy

Factor Market Demand Shift Variables

Price of product, Technology, relative price of other factors

Input Substitution

moving from capital-intenseive to a labor-intensive techniques if capital becomes more expensive or vice versa

Elasticity of input substitution

The Factor Market responsiveness to a change in relative prices of factors is measured by elasticity of input substitution

General Equilibrium Theory

the analysis of markets as part of a web of connections

simultaneous system

a system in which all elements function as part of a larger whole, like an ecosystem

Partial Equilibrium Analysis

To study markets independently

General Equilibrium Analysis

the analysis of all the economy's markets simultaneously, recognizing the interactions among the various markets

Wages

a fixed regular payment, typically paid on a daily or weekly basis, made by an employer to an employee, especially to a manual or unskilled worker.

2 things to consider when sking for a raise

elasticity of factors that the business buys and the elasticity of the product the business sells