Ch5 Flashcards
Supply
The amount of a product that would be offered for sale at all possible prices on the market
Law of supply
Principle states that suppliers will normally offer more product for sale at higher prices and less at lower
Supply schedule
Listing of various quantities of a particular product supplied at all possible prices in the market
Supply curve
Graph showing various quantities supplied at each price in the market
Market supply curve
Shows the quantities offered at various prices by all firms that offer the product for sale In the market
Quantity supplied
Amount that producers bring to the market at any price
Change in quantity supplied
Change in the amount offered for sale in response to a change in price
Change in supply
Situation where suppliers offer different amounts of a product for sale at all possible prices
Elasticity of supply
Measure of the way in which quantity supplied responds to a change in price
Elasticity
A measure of the way quantity adjusts to a change in price
Elastic supply
Change in price = large change in quantity supplied
Inelastic supply
Change in price = small change in quantity supplied
Unit elastic supply
Change in price = proportional change in quantity supplied
Theory of production
The relationship between the factors of production and the output of good
Law of variable proportions
Output will change as one input changes while the others are held constant
Production function
Concept describes relationship between changes in output to different amounts of a single input while other inputs are held constant
Total product
Total output produced by the firm
Marginal product
Extra output or change in total product cause by the addition of one or more unit of variable product
Increasing returns
Output increases with the addition of each input of labor
Diminishing returns
Stage where output increases at a diminishing rate as more units are added
Negative returns
Stage where the firm has hired too many workers
Fixed costs
Cost that a business incurs even if the plant is idle and output is zero
Usually machines and capital goods
Overheard
Total fixed cost or fixed cost of operation
Total operating expenses of a business
Variable cost
Cost that changes when the business rate of operation or output changes
Labor and raw materials
Total cost
Sum of the fixed and variable cost
Marginal cost
Extra cost incurred when a business produces one additional unit of a product
Total revenue
Number of units sold multiplied by average prices per unit
Marginal revenue
Extra revenue associated with the production and sale of one additions unit of output
Finding marginal revenue
Divide total revenue by the marginal product
Marginal analysis
Type of cost benefit decision making that compares the extra benefits to the extra costs of an action
Break even point
Total output or total product that a business needs to sell in order to cover its total cost
Profit maximizing quantity of output
Reached when marginal cost and marginal revenue are equal
