chapter 5 Flashcards
principle that more will be offered for sale at higher prices than at lower prices.
Law of supply
amount of a product a producer or seller would be willing to offer for sale at all possible
prices in a market at a given point in time.
Supply
a table showing the quantities that would be produced or offered for sale at
each and every possible price in the market at a given point in time.
Supply schedule
a graph that shows the quantities supplied at each and every possible price in the
market.
Supply curve
specific amount offered for sale at a given price; point on the supply curve.
Quantity Supplied
different amongst offered for sale at each and every possible price in the
market; shift of the supply curve.
Change in supply
responsiveness of quantity supplied to a change in price.
Supply Elasticity
graphic portrayal showing how a change in the amount of a single variable
input affects total output.
Production Function
production period so short that only variable inputs (usually labor) can be changed.
Short run
production period long enough to change the amount of variable and fixed inputs used
in production.
Long run
total output or production by a firm.
Total product
extra output due to the addition of one more unit of input.
Marginal Product
phases of production that consist of increasing, decreasing, and negative
returns.
Stages of production
stage of production where output increases at a decreasing rate as more
units of variable input are added.
Diminishing Returns
costs of production that do not change when output changes.
Fixed costs
broad category of fixed costs that includes interest, rent, taxes, and executive salaries.
Overhead
production cost that varies as output changes; labor, energy, raw materials.
Variable cost
extra cost of producing one additional unit of production.
Marginal cost
level of production where marginal cost is equal to
marginal revenue.
Profit-Maximizing Quantity of Output
production level where total cost equals total revenue; production needed if the
firm is to recover its costs.
Break-Even Point
Combination of quantities that someone
would be willing and able to buy over a
range of possible prices at a given
moment.
Demand
Branch of economic theory that deals
with behavior and decision making by
small units such as individuals and firms.
MICROECONOMICS
Graph showing the quantity demanded at each and every possible price that might prevail in the market at a given time
Demand curve
Rule stating that more will be demanded at lower prices and less at higher prices, an inverse relationship between price and quantity demanded
Law of Demand
Additional satisfaction or usefulness
obtained from acquiring or consuming
one more unit of a product.
Marginal Utility
Decrease in additional satisfaction or
usefulness as additional units of a
product are acquired.
DIMINISHING MARGINAL UTILITY
movement along the demand curve
showing that a different quantity is
purchased in response to a change
in price.
Change in Quantity Demanded
That portion of a change in quantity
demanded caused by a change in a
consumers income when the price of a
product changes.
Income effect
The portion of a change in quantity
demanded that is due to a change in the
relative price of the good.
SUBSTITUTION EFFECT
different amounts of a product
are demanded at every price,
causing the demand curve to
shift to the left or to the right.
Change in Demand
Competing products that can be used in
place of one another; products related in
such a way that an increase in the price
of one increases the demand for the
other.
SUBSTITUTES
Products that increase the use of other
products; products related in such a way
that an increase in the price of one
reduces the demand for both.
Compliments
A measure of responsiveness that tells us
how a dependent variable, such as
quantity demanded or quantity supplied,
responds to a change in an independent
variable such as price.
Elasticity
The extent to which a change in price
causes a change in the quantity
demanded; demand elasticity has three
cases; elastic, inelastic, or unit elastic.
DEMAND ELASTICITY
Type of elasticity in which a change in the
independent variable (usually price) results in a
larger change in the dependent variable
(usually quantity demanded or supplied).
Elastic
Case of demand elasticity where the
percentage change in the independent variable
(usually price) causes a less than proportionate
change in the dependent variable (usually
quantity demanded or supplied).
Inelastic
elasticity where a
change in the independent variable
(usually price) generates a
proportional change of the
dependent variable (quantity
demanded or supplied).
Unit Elastic
As price increase,
As price decreases
demand decreases
demand increases
A product’s ___ motivates a
consumer to demand
more of the product.
marginal
utility
Substitute examples
Sweats and leggings
Milk and almond milk
butter and margarine
Complements
Cell phone and charger
Burgers and buns
Socks and shoes
Inelastic demand example
Medicine
Determinants of Elasticity
Can purchase be delayed?
Are adequate substitutes available?
Does purchase use a large portion of income?
The supply curve slopes in the ___ direction of the
demand curve.
opposite
A change in quantity
supplied is caused by a
change in the
price of a product
When the cost of resources decreases,
When the cost of resources increases,
supply increases
Supply decreases
The use of the production
function is important to
business because it allows
businesses to gauge whether
additional input will result in
extra output.
Stages of production
Increasing Marginal Returns
Decreasing Marginal Returns
Negative Marginal Returns
Costs that affect a business’s production decisions
fixed cost
variable cost
total cost
marginal cost
