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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
Q

Describe the three stages of production and how they relate to the concept of diminishing returns.

A

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

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26
Q

fixed costs

A

cost of production that does not change when output changes; also called overhead

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27
Q

overhead

A

broad category of fixed costs that include interest, rent, taxes, and executive salaries

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28
Q

depreciation

A

gradual wear on the capital goods during production

29
Q

variable cost

A

production cost that varies as output changes; labor, energy, and raw material

30
Q

total cost

A

variable and fixed costs; all costs associated with production

31
Q

marginal cost

A

extra cost of producing one additional unit of production

32
Q

total revenue

A

total receipts; price of goods sold times quantity sold

33
Q

marginal analysis

A

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
Q

break-even point

A

production needed if the firm is to recover its costs; production level where the total cost=total revenue

35
Q

profit maximizing quantity of output

A

marginal cost=marginal revenue

36
Q

Identify the relationship between productivity and cost

A

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
Q

Define four key measures of cost

A
  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
Q

2 measures of revenue

A
  1. total revenue

2. marginal revenue

39
Q

4 key measures of cost

A
  1. fixed/overhead cost
  2. variable cost
  3. total cost
  4. marginal cost
40
Q

rationing

A
  • system of allocating goods and services without prices
41
Q

ration coupon

A
  • certificate allowing holder to receive a given amount of a rationed product
42
Q

Explain how prices act as signal to both producers and consumers

A

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
Q

Describe the advantages of using prices as a way to allocate economic products

A

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
Q

Understand the difficulty of using rationing and other non-price criteria to allocate scarce goods and services.

A
  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
Q

economic model

A
  • set of assumptions in a table, graph, or equations used to describe or explain economic behavior
46
Q

market equilibrium

A
  • condition of price stability where quantity
47
Q

surplus

A
  • situation where quantity supplied is greater than quantity demanded at a given price
48
Q

shortage

A

situation where quantity supplied is less than quantity demanded at a given price

49
Q

equilibrium price

A
  • price where quantity supplied equals quantity demanded; price that clears the market
50
Q

loss leader

A

item intentionally sold below cost to attract customers

51
Q

Understand how prices are determined in competitive markets.

A

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
Q

importance of an economic model

A

Economic models are needed to demonstrate how a market works.

53
Q

Explain the role of shortages and surpluses in competitive markets.

A

Constant pressures from shortages and surpluses move prices in a competitive market toward equilibrium

54
Q

rebate

A

partial refund of the original price of the product

55
Q

price ceiling

A

maximum legal price that can be charged for a product

56
Q

minimum wage

A

lowest wage that can be paid to most workers

57
Q

price floor

A
  • lowest legal price that can be charged for a product
58
Q

target price

A
  • agricultural floor price set by the government to stabilize farm income
59
Q

non-recourse loan

A
  • agricultural loan that carries neither a penalty nor further obligation to repay if not paid back
60
Q

deficiency payment

A

cash payment making up the difference between the market price and the target price of an agricultural crop

61
Q

Explain how prices allocate resources between markets.

A

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
Q

Describe the consequences of having a fixed price in a market

A

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
Q

Apply your knowledge of demand elasticity to predict the size of a price change.

A

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
Q

Understand what is meant when markets talk.

A

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
Q

Explain what is meant by a “system” of prices.

A

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
Q

Explain why shortages and surpluses are not temporary when price controls are used

A

The market has no way to adjust itself back to equilibrium when prices are fixed.

67
Q

Explain why shortages and surpluses are not temporary when price controls are used.

A

The market has no way to adjust itself back to equilibrium when prices are fixed

68
Q

Describe two causes of a price change in a market.

A
  1. a change in supply

2. a change in demand

Economics (4 decks)

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