ECON: Unit 2: Ch 6 Flashcards
supply and demand related
AKA equilibrium price
- when quantity demanded = quantity supplied
- determined through demand and supply schedule where QS = QD, or demand and supply graph where the D curve and the S curve intersect
- the equilibrium price can change
what happens to the price if the D curve shifts
Right…price increases
left…price decreases
what happens to the price if the S curve shifts
right. ..price decreases
left. .price increases
if the price is not at equilibrium…
above: there will be surplus, more supply than demanded
- the Price will be lowered to sell more goods
below: there will be a shortage, more demanded than supplied, the price will be raised until fewer people can afford it
demand schedule
consumers are willing to buy at various prices
supply schedule
sellers are willing to sell at various prices
equilibrium
balance between price and quantity
disequilibrium
quantity supplied does not equal quantity demanded
-can produce excess demand or excess supply
gov intervention to help disequilibrium
price ceiling: a maximum price that can be legally charged for a good ie rent control, to improve competition, prevent monopolies, make a good more affordable, creates shortage QD-QS
price floor: minimum for a good or service ie minimum wage, to encourage economic growth, will always be above market price, creates surplus QS-QD
factors of changes in market equilibrium
shift in entire demand curve or shift in entire supply curve
- change in price: because of advance in technology, gov tax, subs, change of price of factors of prod
- a shift in the supply curve will change the equilibrium price and quantity
- changes as market conditions change
- retailers are constantly searching for a new equilibrium and consumers recognize the searching by the frequent price changes, sales
finding a new equilibrium
if excess supply is present the price will fall to a point where QS = QD
a fall in supply…
ie a strike–increase the price, decrease in quantity demanded
changes in quantity demanded
- can be rapid and unexpected
- search costs: the financial and opportunity costs consumers pay in searching for a good or service ie driving, calling around
- return to equilibrium by increasing or decreasing price
supply
the willingness and ability to produce a particular item at a specified price and time
- Quantity supplied varies with price of item
- is a direct relationship
law of supply
- offer more supply at higher prices
- supplies will normally offer more for sale at higher prices and less at lower prices
quantity supplied
amount producers bring to market at any given price
- change in amount offereed for sale in response to change in price
- movement along supply curve
- change in QS = change in price
change in supply
- cost of resources
- productivity
- technology
- taxes, subsidies, regulations
- expectations about future price, increase price is current decrease supply, decrease price is current supply increase
- number of sellers
- disasters
elasticity of supply
measure of way in which quantity supplied responds to change in price
- increase price is increase in output…elastic
- increase price is decrease in output…inelastic
- price is same as output…unit elastic
- use coefficient method (%changeQS/%changeP)
determinants of supply elasticity
- nature of production
- can adjust quickly to new prices= elastic
- # of subs has no bearing on supply elasticity/ability to delay/portion of income `
the production function
shows how output changes when amount of a single variable input changes while all other inputs are held constant
stages of production
- increasing marginal returns: marginal product of each additional worker increases
- decreasing marginal returns: output increases at a diminishing rate as more variable inputs are added
- negative marginal returns: when marginal products of additional workers is negative
marginal product
the extra output caused by adding one more unit of variable input
measures of cost
fixed costs, variable costs, total cost, marginal cost
fixed cost
AKA overhead
- costs that an organization incurs even if there is little or no activity
- ie salaries paid, interest, tax, gradual wear and tear on capital goods
variable cost
- costs that change when the business rate of operation or output changes
- associated with labor and raw materials
- typically largest cost is labor
total cost
sum of fixed and variable cost
marginal cost
- extra cost incurred when producing 1 more unity of output
- more useful–more so than total cost because it helps with profit maximization
