Econ Exam 1.2: Feb 6 Flashcards
What are the exceptions to the law of demand?
Veblin Effect and Giffen Good
Veblin Effect
conspicuous consumption, if you buy the higher priced item, you have a higher social status
Giffen Good
2 requirements:
1) people must be really, really poor
2) good must be the cheapest item around
Complete Market Supply Function
tells us the quantity of a good that producers would be willing and able to supply at all alternative market prices, and all alternative market circumstances
Sx= f(Px, Ns, Pr, Tl, Es…)
complete market supply function
Ns
number of sellers
Pr
price of resources
Tl
level of technology
Es
expectations of suppliers
Single Market Supply Function
tells us the quantity of a good that producers would be willing and able to supply at all alternative market prices, c.p.
Sx=f(Px)
single market supply function
Law of Supply
there is a direct or positive relationship between the quantity of a good supplied and the price in the short run
Short Run
a period of time so short that the firm cannot change all inputs by the same proportion (some inputs will be fixed, and some will be variable)
Long Run
A period of time in which a firm could vary all of its inputs by the same proportions
Labor =
Capital =
labor = variable capital = fixed
Why does the supply curve slope to the right?
Law of diminishing returns
Law of Diminishing Returns
as we add more and more of a variable resource (labor) to a fixed set of inputs (capital) with a fixed technology, the resulting output will increase over the relevant range, but at a decreasing rate.
(ex. milking cows, 2 ppl vs 3 ppl in parlor)
Total Physical Product of Labor
the total amount of a product produced during a given time period by labor (TPPL)
Marginal Physical Product of Labor
the extra physical product resulting from the addition of one more unit of labor (MPPL)
What is the only way producers can afford to expand output?
By raising the selling price
