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; >
