Exam 2 - Practice Exam Notes

Agent: Employees acting on behalf of owners.
Complement: Products usually purchased and used with each other.
Elasticity: The sensitivity of change in quantity to changes in other variables.
Law of Demand: As the Price of a product increases, the Quantity Demanded will decrease.
Law of Supply: As the Quantity Supplied increases, the Price charged must increase as well.
Marginal Factor Cost: The change in Total Cost when you add "one more" factor of production.
Marginal Physical Product: The change in quantity produced when you add "one more" factor of production.
Marginal Revenue Product: The change in Total Revenue when you add "one more" factor of production.
Principal: An owner/stockholder of a firm.
Substitute: Products that all meet the same need.
Capital: Combination/result of "land" and "labor".
Explicit Cost: Money paid out to gain some benefit.
Factors of Production: Resources employed in making stuff.
Free of Charge: Having no monetary cost.
Implicit Cost: Any non-money resource given up to gain some benefit.
Labor: Any "people" resource.
Land: Naturally-occurring resources.
Opportunity Cost: A potential benefit given up, lost, or sacrificed trying to gain another benefit.
Sunk Cost: A cost already lost/given up that can't be recovered and can't be changed by future decisions.
Transaction Cost: An additional cost incurred in the process of trading costs for benefits.

When demand decreases, equilibrium price and quantity decrease.
When supply decreases, equilibrium price increases and equilibrium quantity decreases.
Increased popularity leads to increased demand, equilibrium price, and equilibrium quantity.

Complements: If the price of Product B decreases, the demand for Product A increases; Product A's equilibrium price and quantity increase.
Substitutes: If the price of Product B decreases, the demand for Product A decreases; Product A's equilibrium price and quantity decrease.

An increase in the number of buyers increases demand, equilibrium price, and equilibrium quantity.
A decrease in the number of buyers decreases demand, equilibrium price, and equilibrium quantity.
Decreased taxes for producers increases supply, decreases equilibrium price, and increases equilibrium quantity.
Decreased wages for producers increases supply, decreases equilibrium price, and increases equilibrium quantity.
Decreased overhead costs for producers increases supply, decreases equilibrium price, and increases equilibrium quantity.
Decreased production costs increase supply, decrease equilibrium price, and increase equilibrium quantity.
Increased production costs decrease supply, increase equilibrium price, and decrease equilibrium quantity.

Price changes from $2.37$ to $2.96$ , quantity demanded changes from $9,992$ to $8,000$ -> Unitary Demand.
Price changes from $4.78$ to $4.49$ , quantity demanded changes from $3,278$ to $3,426$ -> Inelastic Demand.
Given more time, demand becomes more elastic. Products with many substitutes tend to have more elastic demand.

Income Elasticity of Demand values that indicate a Normal product: $0.358$ , $1$ , $0.881$ , $0.573$

Says that having employees is expensive because Principals have difficulty trusting Agents and Agents have difficulty being loyal to Principals.

An increase in the demand for labor increases the wage rate and the quantity of labor.
An increase in the supply of labor decreases the wage rate and increases the quantity of labor.
A decrease in the price of the product produced by workers decreases the demand for labor, the wage rate, and the quantity of labor.
If the price of a substitute factor for labor decreases, the demand in that labor market decreases, the wage rate and the quantity of labor decreases.
If the price of a complement factor for labor increases, the demand in that labor market increases, the wage rate decreases and the quantity of labor increases.
Improved working conditions increase the supply of labor, decrease the wage rate, and increase the quantity of labor.
Higher training costs for workers decrease the supply of labor, increase the wage rate, and decrease the quantity of labor.
Lower training costs for workers increase the supply of labor, decrease the wage rate, and increase the quantity of labor.