Economics Vol 2 Flashcards
Demand and Supply
Demand Curve
highest quantity willingly purchased at each price AND the highest price willing paid at each quantity
Elasticity of demand/ supply
how sensitive demand/supply is to a change in price
Expressed as a ratio of percent changes
Magnitude
measures number, excluding if the value is pos or neg
Inelastic
Q demanded is not very sensitive to a change in P;
When magnitude of own-price elasticity < 1
Elastic
Q is sensitive to a change in P
When magnitude of own-price elasticity > 1
Unit elastic
when the own-price elasticity = -1
Perfectly inelastic
when Q is not at all sensitive to P; Vertical demand curve
Perfectly Elastic
Horizontal demand curve at some given price;
Shows that the slightest increase in price will reduce quantity demanded to 0
Durable Goods
goods that are investment; ex: dishwasher
Elastic Good
price and total expenditure move oppositely
Inelastic Good
price and total expenditure move in same direction
Elastic Markets
Decrease in price = more goods sold = increase in total revenue
Inelastic markets
Decrease in price = decrease in total revenue
Income Elasticity of Demand
how sensitive demand is to consumer income
Normal Goods
positive income elasticity; goods that increase in demand with more income
Inferior Goods
negative income elasticity; demands decreases when income increases
Cross-Price Elasticity
sensitivity of demand in relation to price of a separate good
Substitutes
hen the price in Good Y increases, the demand of Good X increases
Complements
price in Good Y increases, demand for Good X decreases
Income effects
when the price of a good decreases AND consumers’ income increases
Real Income
the amount of income a person has after a product that they regularly purchase decreases
Giffen Good
when the income effect is SO strong, it overpowers the substitution effect
Veblen Goods- status symbols
increase in price = increase in demand (status symbols
Marginal Product (MP)
productivity of each additional unit for resources
Increasing Marginal Returns
when marginal product increases as additional inputs are used
Input Productivity
measure of output per unit of input
Inputs
factors of production
Total Cost
cost of all the firms inputs
Total Product
sum of all output from all inputs during a time period; total output (Q)
Average Product
total product / Q of a given input; measures productivity of an input on average; measures the average amount of productivity per worker
Marginal Product/ Marginal Return
amount of additional output from using one or more unit of input (assuming other inputs are fixed); measures productivity of each additional unit of input (with other resource quantities remaining fixed); shows productivity gained/lost by adding another worker for another hour
Economic Profit
Total Revenue (TR) - total economic costs (TC)
Economic Costs
opportunity costs- an expense that could have been spent on something else, or a missed opportunity to make income
Accounting Profits
Total Return (TR) - total accounting costs; used to spread historical costs for taxes
Marginal Revenue
Additional revenue realized from the decision to increase output by one unit per time period
Marginal Cost
increase in total cost from the decision to increase output by one unit per period of time
Variable Costs
Costs that move with level of production and sales
Average Variable Cost (AVC)
ratio of total variable cost to total output
Total Fixed Cost
Sum of all expenses that don’t change as level of production changes
Total Variable Cost
Sum of all variable expenses
Average Revenue
Revenue per unit OR price per unit
Economic Loss
When a firm’s revenue doesn’t meet the total opportunity cost
Shutdown Point
Lowest point on the AVC curve
Breakeven Point
Lowest point on the ATC curve
Economies of Scale
when a firm increases output and the cost per unit of production falls; negative LRAC slope
Diseconomies of Scale
hen increase in output creates increase in the cost of unit of production; positive LRAC slope
Minimum Efficient Scale
minimum point on the LRAC
