Articles Flashcards
Explain Division of labor according to Smith
Every worker excels a different part of the making of something, a product gets made faster
Define the law of demand:
The lower the prices the greater the quantity demanded
Explain curve shifts to the right (demand)
greater willingness to pay for the same quantity, greater quantity demanded for the same price
Explain curve shifts to the left (demand)
smaller quantity demanded for the same price, less willingness to pay for the same quantity
Whats the pricing system according to Hayek
An information network. Prices are signals
Define the law of supply
The higher the price, the greater the quantity applied
Explain curve shifts to the right (supply)
greater quantity supplied at the same price, willing to sell the same quantity at lower prices
Explain curve shifts to the left (supply)
higher prices required to sell the same quantity, smaller quantity supplied at the same price
Explain the adjustment process
if the price is higher than the equilibrium price you will have an excess supply or surplus, but competition will push the prices down, if the price is below the equilibrium price there will be an excess demand or shortage, but competition will push the prices up.
When is surplus maximized?
Surplus is maximized at the equilibrium price and quantity, no other combination maximizes it.
Define Elasticity
Change in Quantity/ Change in price
When do firms grow?
When transaction costs of coordinating production through the market exchange is greater than within the firm
Why are demand curves more elastic in the long run?
Because then all exit or entry has occured
Define Sunk costs
Costs that cannot be recovered
Producer wants Marginal revenue to be ___ than Marginal cost
Higher; >
In a competitive industry, Marginal Revenue ___ Price
=
When Price > MC, producing additional quantities means?
More profits
When should a firm exit?
When P < AC (zero profits)
When should a firm shutdown?
When P < VC/Q = ACC
Define Economies of scale
Decrease in average production costs that often occurs as the total quantity of production increases
How is leverage calculated?
Debt / equity
Define Menu costs
The costs of changing prices
Define the AD/AS model
Shows how unexpected economic disturbances can temporarily increase or decrease the rate of growth.
Define the Ricardian equivalence
Occurs when individuals notice that lower taxes today mean higher taxes in the future, people save their taxes
Whats the Intention-action gap?
People say they want to buy a sustainable product, but they dont buy it
Whats the licensing-effect?
After doing something good, people do something bad
Explain Loss aversion:
People are willing to take risks to avoid a loss than to make a gain
Explain securization
Getting up front cash while the buyer gets the right to a stream of future payments
Explain Surge-pricing
Demand for rides increases, prices go up, riders pay more or wait till the prices go down
Explain the concept of corporation by John Kay
Modern business are not capital intensive, the corporation is a social organisation, implicit contracts are key within organisations
Explain Self-cannibalization
When a company chooses to proactively replace one product or process with another that is potentially worth less.
Prices are sticky in the short run because of: Nominal wage confusion, menu costs, money illusion
