Econonomics chapter 4-5 test review

test this friday

demand

the desire, ability, and willingness to buy a product

microeconomics

deals with behavior and decision making by individual units, such as people and firms

market economy

people and firms act in their own best interest to answer how, what, and for whom questions

what are the two variables of demand

price and quantity of a specific product in a given point in time

factors that affect demand

• the number of people living in the area

• the number and types of other movies that were playing at the same time

• popularity (relevance)

demand schedule

shows how much of a product people would by at different prices

demand curve

a graph showing the quantity demanded at each and every price that might prevail in the market

law of demand

when prices go up, people buy less—and when prices go down, people buy more

change in quality demanded

a change that is graphically represented as a movement along the demand curve

income effect

the change in quantity demanded because of a change in price that alters consumers’ real income

substition affect

the change in quantity demanded because of the change in the relative price of the product

change in demand

people may decide to buy different amounts of the product at the same prices

substitutes

they can be used in place of other products

complements

the use of one increases the use of the other

elasticity

a measure of how much people change their buying or selling habits when something else—like price or income—changes

demand elasticity

the extent to which a change in price causes a change in the quantity demanded

elastice demand

• Buyers react strongly to price changes. If a price goes up a little, people stop buying it or switch to a cheaper option luxouries or restaurant meals

inelastic demand

Buyers do not care much about price changes. If the price goes up, people keep buying the same amount groceries and necessities

unit elastic

a given change in price causes a proportional change in quantity demanded

supply

The amount of a product that sellers are willing and able to sell at different prices

quantity supplied

The specific amount of a product sellers are willing to sell at one particular price.

• Example: At $2 per cupcake, the bakery supplies 100 cupcakes

law of supply

When the price goes up, quantity supplied goes up; when the price goes down, quantity supplied goes down

supply schedule

A table that shows how much of a product sellers will supply at different prices.

• Example: $1 → 50 items, $2 → 100 items, $3 → 150 items

supply curve

A graph that shows the relationship between price and quantity supplied.

• It usually slopes upward from left to right because of the Law of Supply.

market supply curve

A graph showing the total quantity supplied by all sellers in a market at different prices.

• Think: one seller = supply curve; all sellers together = market supply curve

change in quantity supplied

A change in how much sellers produce because the price of the product changes.

• Example: The price of pizza rises, so a restaurant makes more pizza.

change in supply

A change in the entire amount sellers are willing to sell caused by something other than the product's own price.

• Examples: Changes in production costs, technology, taxes, or number of sellers.

subsidy

Money or financial help given by the government to businesses or producers to encourage them to produce something.

• Example: The government gives farmers money to help lower their production costs.

supply elasticity

Measures how much the quantity supplied changes when the price changes.

• Elastic supply: Sellers can change production a lot when prices change.

inelastic supply

• Sellers can't change production very much when prices change.

production function

Shows the relationship between inputs (like workers and machines) and the output (goods/services) they produce.

• Easy way: Inputs → Output

short run

A period of time when at least one input cannot be changed.

• Example: A restaurant can hire more workers, but it can't quickly make the building bigger.

long run

• A period of time when all inputs can be changed.

  • Example: The restaurant can hire more workers and expand to a bigger building.

total product

The total amount of output produced by a business.

• Example: If 5 workers make 100 pizzas, the total product is 100 pizzas.

marginal product

The additional output produced by adding one more worker (or one more unit of an input).

• Example: 5 workers make 100 pizzas, and adding a 6th worker makes 115 pizzas. The marginal product is 15 pizzas.

stages of production

The different stages a business goes through as it adds more workers or other inputs.

• Basically: production can increase quickly → increase more slowly → eventually decrease.

diminishing returns

When adding more workers causes the extra output from each new worker to become smaller.

• Example:

  • 1st worker adds 20 pizzas

  • 2nd adds 20

  • 3rd adds 15

  • 4th adds 10

• The workers are still producing more, but each additional worker adds less than the one before.

fixed cost

Costs that do not change when a business produces more or less.

• Example: Rent for a store. You pay it even if you sell nothing

overhead

The ongoing costs of running a business, especially costs not directly connected to making a product.

• Example: Rent, electricity, insurance, and office expenses.

variable costs

Costs that change when production changes.

• Example: A pizza shop needs more cheese and dough when it makes more pizzas.

total cost

The total amount a business spends to produce its goods.

• Fixed costs + Variable costs = Total cost

marginal cost

The additional cost of producing one more unit.

• Example: If making 10 pizzas costs $50 and making 11 costs $54, the marginal cost is $4.

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e-commerce

• Buying and selling goods or services over the internet.

  • Example: Buying shoes from an online store.

break even point

The point where total revenue equals total cost, so the business makes no profit and no loss.

total revenue

The total money a business receives from selling its products.

• Price × Quantity sold = Total revenue

• Example: 10 pizzas × $15 = $150 total revenue

marginal revnue

The additional revenue earned from selling one more unit.

• Example: If selling one more pizza brings in $15, the marginal revenue is $15.

• Remember: Marginal = extra

marginal analysis

Comparing the extra benefit/revenue of an action with its extra cost to decide whether it's worth doing.

• Example: "Will making one more pizza earn us more money than it costs to make?"