Economics Unit 2: Supply & Demand – Flashcards
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What is demand?
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Desire, ability, and willingness to buy a product
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What is microeconomics?
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Area of economics that deals with behavior and decision-making by small units (ex. individuals/firms)
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Law of Demand
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States that the quantity demanded varies inversely with its price
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Marginal utility
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-Extra usefulness/satisfaction a person gets from acquiring one more unit of a product -amount of utility/satisfaction added "at the margin"
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Diminishing marginal utility
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States that the more units of a certain economic product a person acquires, the less eager that person is to buy more
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Change in quantity demanded
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-movement along the demand curve shows a change in quantity demanded -the more a product costs, the less people are willing to buy
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What is the income effect?
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-The change in quantity demanded because of a change in the consumer's real income when the price of a commodity changes -Consumers will spend less money on the same quantity, making them feel richer
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Change in demand
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People are now willing to buy different amounts of the product at the same price
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Change in demand curve
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Right = increase Left = decrease
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Change in quantity demanded curve
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Price increase = move up Price decrease = move down
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What factors can lead to a change in demand?
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-consumer income -consumer tastes -substitutes -complements -change in expectations -number of consumers
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Demand elasticity
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Indicates extent to which changes in price cause changes in the quantity demanded
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Elastic demand
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Relatively SMALL change in price causes relatively LARGE change in quantity demanded
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Inelastic demand
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Given change in price causes relatively SMALLER change in quantity demanded
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Specific market
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-particular market -elastic demand
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General market
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-general market -inelastic demand
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What is supply?
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schedule of quantities that would be offered for sale at all possible prices that could prevail in the market
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Each supplier must decide what?
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how much to offer for sale at various prices
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The ____ the price, the _____ the quantity the seller will offer for sale.
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higher, greater
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What is the supply curve?
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-slopes upward and to the right -reflects the tendency of suppliers to offer greater quantities for sale at higher prices
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What is the supply curve the opposite of?
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Demand curve
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Law of Supply
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the quantity supplied varies directly with its price
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What does movement along the supply curve (change in quantity supplied) show?
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a change in quantity supplied
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A change in quantity supplied is:
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the change in the amount of offered in response to a PRICE
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A change in supply means:
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suppliers are now willing to supply more/less of the product at the SAME PRICE
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What factors can lead to a change in supply?
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-cost of inputs -productivity -technology -number of sellers -taxes -subsidies -expectations -government regulations
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Theory of Production
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-deals with the relationship between factors of production and output of goods and services -looks at how output changes when inputs change
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What is the short run?
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a period of production that allows producers to change only the amount of variable inputs
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What is the long run?
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a period of production long enough for all inputs, including capital, to vary
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production function
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concept that relates changes in output to different amounts of a single input, while other inputs are held constant
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What is total product?
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total output produced by a firm
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What is marginal product?
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extra output generated by adding one more unit of variable input
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Three Stages of Production
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1) Increasing Returns 2) Diminishing Returns 3) Negative Returns
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What is Stage I of Production?
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-Increasing Returns -marginal product is increasing
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What is Stage II of Production?
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-Diminishing Returns -as more units of a certain variable input are added to a constant amount of other resources, total output keeps rising but at a diminishing rate
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What is Stage III of Production?
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-Negative Returns -marginal product is negative and total output decreases
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fixed costs
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-costs that a business incurs even if the plant is idle and output is zero -total fixed cost = overhead, stays the same -examples: salaries, rent, taxes -include depreciation (gradual wear/tear on capital goods over time through use) -DO NOT CHANGE WHEN OUTPUT CHANGES
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variable cost
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-cost that does change when the rate of operation/output changes -associated with labor and raw materials -examples: electricity, freight charges on shipments
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total cost
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sum of the fixed and variable costs
