Economics Flashcards
Demand determinants
Substitutability
Proportions of income
Luxuries versus necessities
Time consumers often need the adjust to change in price
Demand
Various amount of a product that consumers are willing to purchase at each of a series of possible price during a specified period of time
Marginal cost
The incremental cost of producing an additional unit of output
Mc=delta c/ delta q
law of demand
The quality of a good customer able and willing to buy will decrease as price increase. It shows the quantities of a product that will be purchased at various possible prices, other things equal.
Law of diminishing returns
As successive units of a variable resources( say labour) are added to a fixed resources( say capital) ,beyond some point, the extra, or marginal product that can attribute to each additional unit of the variable resources will decline.
Marginal cost
Are the cost that the firm can control directly and immediately, specifically. Marginal cost designates all the cost incurred in producing the last unit of output, thus it also designates the cost that can be saved by not producing the last unit.
A firm’s decisions as to what output level to produce are typically marginal decisions that is decisions to produce a few more or a few less units
Explicit cost
Cash expenditure( or monetary payment) it makes to those who supply labour, etc
Implicit cost
Opportunity cost
Normal profit
As a cost( a cost of doing business)
Economic profit
Pure profit
Income effect
A lower price increases the purchasing power of a buyer’s money income, enabling the buyers to purchase more of the product than before. A higher price has the opposite effect.
Substitution effect
Lower price buyers have the incentive to substitute what is now a less expensive product for similar products that are now relatively more expensive. The product whose price has fallen is now a “ better deal “ relative to the other products.
Rationing function of prices
The ability of the competitive forces of supply and demand to establish a price at which selling and buying decisions are consistent is called the rationing function of prices.
wage price spiral
Macro economic theory used to explain the cause and effect relationship between rising wages and rising prices, or inflation.
Rising wages>disposable income>demand for goods>goods price> demand for higher wages>higher production costs>upward pressure on price( conceptual spiral )
Strike
Strike is a situation in which if the required( demanded) wage lag above the existing or offered wage, unionized labour supply goes to zero.
If reaches an impasse in negative, firm forgo sals and profit, workers will sacrifice income, economy could lose output.
Market equilibrium
Equilibrium price: where the intentions of buyers and sellers match. Price where quantity demanded equals quantity supplied.
GDP
Total market value of all final goods and services produced in a given year within the boarder of the country.
In a private closed economy: y( income/ GDP)= C(private consumption) + I ( investment)
Short run
Is a period that is too short for the firm to alter its plant capacity ( capital stock) , yet long enough to permit a change in the degree to which the fixed plant is used.
It can cary its output by applying larger or smaller amount of labour to that plant.
