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Economics > Ch. 5 & 6 > Flashcards

Ch. 5 & 6 Flashcards

1
Q

supply

A

-a schedule of quantities that would be offered for sale at all possible prices in the market

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2
Q

supply schedule

A
  • tabular listing showing the quantities produced or offered for sale at each and every price in the market
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3
Q

supply curve

A

graphical representation of the quantities produced at each and every possible price
in the market; it always slopes upward and to the right, opposite the demand curve

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4
Q

law of supply

A

the quantity supplied, or offered for sale, varies directly with the price

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5
Q

quantity supplied

A

the amount that producers bring to market at any one price

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6
Q

change in quantity supplied

A

the change in amount offered for sale in response to a change in price

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7
Q

change in supply

A

producers offer different amounts of products for sale at all possible prices

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8
Q

subsidy

A
  • government payments to individuals, businesses, or other groups to encourage or protect a
    certain type of economic activity
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9
Q

supply elasticity

A

responsiveness to a quantity supplied to a change in price; there are 3 kinds of
supply elasticity: elastic, inelastic and unit elastic

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10
Q

7 reasons for change in supply

A

cost inputs, productivity, technology, number of

sellers, taxes & subsidies, expectations, and government regulations.

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11
Q

how does supply differ from demand?

A

supply and demand are inversely related

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12
Q

How do you explain that prices and quantities move in the same direction in a supply
schedule?

A

Less will be supplied at lower prices; more will be supplied at higher prices.

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13
Q

How is a change in supply shown on the supply curve?

A

An increase in supply moves the supply curve to the right. A decrease in supply shifts the
supply curve to the left

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14
Q

Why does new technology shift the supply curve to the right?

A

Technology shifts the supply curve to the right because it almost always increases production.

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15
Q

theory of production

A

theory dealing with the relationship between the factors of production and
the outputs of goods and services

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16
Q

short run

A

production period so short that only variable inputs can be changed

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17
Q

long run

A

production period long enough to change the amount of variable and fixed inputs used in
production

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18
Q

law of variable proportions

A
  • in the short run, output will change as one input is varied while others are held constant
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19
Q

production function

A

graphic portrayal showing how a change in the amount of a single variable input affects total output

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20
Q

raw materials

A

unprocessed natural materials used in production

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21
Q

total product

A

total output or production by a firm

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22
Q

marginal product

A

extra output due to the addition of one more unit of inpu

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23
Q

stages of production

A

phases of production (3): increasing returns; decreasing returns and negative returns

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24
Q

diminishing returns

A
  • stage of production where output increases at a decreasing rate as more and more units of variable input are added
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25
Describe the three stages of production and how they relate to the concept of diminishing returns.
Stage 1-Increasing Returns- marginal output increases with each increase in input Stage 2- Diminishing Returns- increase in input increases total production but at a slower rate Stage 3- Negative Returns-increase in input results in total production decrease
26
fixed costs
cost of production that does not change when output changes; also called overhead
27
overhead
broad category of fixed costs that include interest, rent, taxes, and executive salaries
28
depreciation
gradual wear on the capital goods during production
29
variable cost
production cost that varies as output changes; labor, energy, and raw material
30
total cost
variable and fixed costs; all costs associated with production
31
marginal cost
extra cost of producing one additional unit of production
32
total revenue
total receipts; price of goods sold times quantity sold
33
marginal analysis
decision making that compares the extra cost of doing something extra to the extra benefits gained; this is the most useful measure of revenue for businesses and economists
34
break-even point
production needed if the firm is to recover its costs; production level where the total cost=total revenue
35
profit maximizing quantity of output
marginal cost=marginal revenue
36
Identify the relationship between productivity and cost
Both productivity and cost must be considered to make the best production decisions. Efficient production is a function of the quality and cost of inputs used.
37
Define four key measures of cost
1. fixed/overhead cost (including depreciation)- cost of production that does not change when output changes 2. variable cost- production cost that varies as output changes; labor, energy, and raw material 3. total cost- variable and fixed costs; all costs associated with production 4. marginal cost- extra cost of producing one additional unit of production
38
2 measures of revenue
1. total revenue | 2. marginal revenue
39
4 key measures of cost
1. fixed/overhead cost 2. variable cost 3. total cost 4. marginal cost
40
rationing
- system of allocating goods and services without prices
41
ration coupon
- certificate allowing holder to receive a given amount of a rationed product
42
Explain how prices act as signal to both producers and consumers
High prices are a signal for producers to produce more and buyers to buy less. Low prices are a signal for buyers to buy more and producers to produce less.
43
Describe the advantages of using prices as a way to allocate economic products
prices are: 1. are neutral. 2. are flexible. 3. provide for a maximum freedom of choice. 4. have no cost of administration. 5. are efficient.
44
Understand the difficulty of using rationing and other non-price criteria to allocate scarce goods and services.
1. People will feel their rationed amount is too small or not fair. 2. Someone has to pay the costs associated with rationing. 3. Rationing has a negative impact on people’s incentive to work and produce.
45
economic model
- set of assumptions in a table, graph, or equations used to describe or explain economic behavior
46
market equilibrium
- condition of price stability where quantity
47
surplus
- situation where quantity supplied is greater than quantity demanded at a given price
48
shortage
situation where quantity supplied is less than quantity demanded at a given price
49
equilibrium price
- price where quantity supplied equals quantity demanded; price that clears the market
50
loss leader
item intentionally sold below cost to attract customers
51
Understand how prices are determined in competitive markets.
In a competitive market, the adjustment process moves toward equilibrium, a situation in which prices are relatively stable and the quantity of goods or services supplies is equal to the quantity demanded.
52
importance of an economic model
Economic models are needed to demonstrate how a market works.
53
Explain the role of shortages and surpluses in competitive markets.
Constant pressures from shortages and surpluses move prices in a competitive market toward equilibrium
54
rebate
partial refund of the original price of the product
55
price ceiling
maximum legal price that can be charged for a product
56
minimum wage
lowest wage that can be paid to most workers
57
price floor
- lowest legal price that can be charged for a product
58
target price
- agricultural floor price set by the government to stabilize farm income
59
non-recourse loan
- agricultural loan that carries neither a penalty nor further obligation to repay if not paid back
60
deficiency payment
cash payment making up the difference between the market price and the target price of an agricultural crop
61
Explain how prices allocate resources between markets.
Higher prices in oil & gas prices “drove” automobile manufactures to produce more fuel efficient cars. The higher price of international oil resulted in a shift or products out of the large car market into other markets.
62
Describe the consequences of having a fixed price in a market
Many economists argue that fixed prices are examples of government policies whose costs outweigh their benefits. Price ceilings and price floors are examples of fixed prices.
63
Apply your knowledge of demand elasticity to predict the size of a price change.
When the demand for a product is inelastic, and the price rises, people have to spend a greater part of their income on that product. They money they spend on that inelastic product means they have less to spend in other markets.
64
Understand what is meant when markets talk.
Markets communicate when they speak collectively for all of the buyers and sellers who trade in their markets. When prices move up or down they communicate economic activity.
65
Explain what is meant by a “system” of prices.
A system of prices refers to the prices in many markets within an economy as a whole. A change in price in one market often affects prices in other markets.
66
Explain why shortages and surpluses are not temporary when price controls are used
The market has no way to adjust itself back to equilibrium when prices are fixed.
67
Explain why shortages and surpluses are not temporary when price controls are used.
The market has no way to adjust itself back to equilibrium when prices are fixed
68
Describe two causes of a price change in a market.
1. a change in supply | 2. a change in demand

Economics (4 decks)

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