Chapter 1: Intro

Question 1

Reasons for decreased demand for product

Answer 1

• changes in consumer taste
• decrease in price for substitute
• decline in consumer income/number
• expectations of lower future price

Question 2

Reasons for increased supply of product

Answer 2

• lower production costs
• advances in tech=lower production cost
• expectations of higher prices in future=supplier expansions
• increase in number of producers

Question 3

Reasons for decreased supply of product

Answer 3

• increase in cost of raw materials and labour
• decrease in the number of producers

Question 4

Long term state of equilibrium conditions

Answer 4

Price drop: higher demand causes a shortage which drives the price up.
Price rise: lower demand causes surplus drives the price down.

Question 5

Micro vs Macroeconomics

Answer 5

Micro: behaviour of individual decision-making units in free market economy (supply/demand, price and production costs, objectives)
Macro: aggregate behaviour at national and international levels (level of growth in income and consumption, price/wage trends, govt policies)

Question 6

Substitutes and complements

Answer 6

Substitute: increase in price of one good leads to increase in quantity demanded of the other.
Complement: Increase in price of one leads to decrease in quantity demanded of the other

Question 7

Porter’s 5 forces

Answer 7

1. Competition in industry
2. Potential of new entrants in industry
3. Power of supplier
4. Power of consumer
5. Threat of substitute products

Question 8

Elasticity

Answer 8

Ed>1: elastic, significant change in Q when P changes (luxury item)
Ed=1: unitary elastic, equal change in P and Q
Ed<1: inelastic, change in Q is not significant (essential items)

Question 9

Define “total consumer expenditure”

Answer 9

TCE=PQ
Gross revenue from the sale of a particular product on the market.
AKA total producer income.

Question 10

TCE and price change

Answer 10

P rises: PQ incr (elastic), PQ decr (inelastic)
P drops: PQ decr (elastic), PQ incr (inelastic)

Question 11

AP and MP

Answer 11

AP=Q/S: output per unit of input (shallower)
MP=dQ/dS: additional output produced as an input increased by one unit

Question 12

Product curve (Q vs. S)

Answer 12

Stage 1: AP increases, concave up AND down
Pt of Inflection: MP@max
Pt of Tangency: AP@max, AP=MP
Stage 2: AP decreases, MP decreases
Stage 3: transition where MP=0 @ max production, after which MP is negative

Question 13

Isoquant

Answer 13

Used to show the combinations of two factors that produce the same output.
Isoquant map: number of isoquants to describe a production function

Question 14

Total cost function (TC vs. R)

Answer 14

AC=TC/R
MC=dTC/dR
- negative slope: MC<0
- decreasing slope: MC decreasing
MC@min: point of inflection
AC@min: point of tangency