supply and demand

Question 1

economies of scale

Answer 1

average cost decreases as the number of units produced increases

Question 2

diseconomies of scale

Answer 2

average cost increases as the number of units produced increases

Question 3

cost advantages (bulk discount)

Answer 3

large firms can purchase inputs on more favorable terms.

Question 4

labour specialization

Answer 4

you can hire people to do specific things - finding the best match

Question 5

fixed costs

Answer 5

doesn’t change with the number of units you produced
- research about a new iphone, restaurant rent despite customers
(you spend the money to have it, and after than you can produce as many goods as you want)

Question 6

demand advantages

Answer 6

value rises with the number of users. (tiktok wouldn’t be fun with less people)

Question 7

what does the demand curve represent?

Answer 7

represents the quantity demanded at different prices

Question 8

quantity demanded is…

Answer 8

the quantity that buyers are willing and able to purchase at a particular price

Question 9

consumer surplus

Answer 9

consumer gain from the transaction

max price you’re willing to pay - market price

Question 10

total consumer surplus

Answer 10

the big triangle (the price, max willing price, quantity sold)

Question 11

when demand increases….

Answer 11

upward right

Question 12

what may cause increase in demand?

Answer 12

price of substitutes, price of compliments

Question 13

normal goods

Answer 13

demand goes up as income goes up

Question 14

inferior goods

Answer 14

demand goes up as income goes down

Question 15

inelastic goods

Answer 15

quantity demanded changes a little with price change

Question 16

elastic goods

Answer 16

quantity demanded changes a lot with price change

Question 17

inelastic goods are….

Answer 17

few competitive substitutes, time horizons, category

Question 18

MR > MC

Answer 18

you are not profit maximizing, producing more will give you more money

Question 19

MC > MR

Answer 19

you are losing money. each additional unit costs you more than you’re earning

Question 20

MR is the …

Answer 20

straight line

Question 21

MC is the…

Answer 21

curved line

Question 22

supply curve

Answer 22

shows how much sellers are willing to supply at different prices (arabia canada example)

Question 23

producer surplus

Answer 23

market prices - minimum price at which producers would be willing to sell at a given quantity

Question 24

when supply increases….

Answer 24

down to the right (because greater quantity supplied at same price)

Question 25

what leads to an increase in supply?

Answer 25

outsourcing cheap labor, technology

Question 26

equilibrium

Answer 26

under competitive markets, the market price is where supply and demand meet because the market adjusts

Question 27

too much supply relative to demand…

Answer 27

excess supply => price goes down

Question 28

too much demand relative to supply…

Answer 28

shortage => price goes up

Question 29

monopoly

Answer 29

a firm that’s the only seller of a product without close substitutes

Question 30

what is the firm’s feasible frontier?

Answer 30

the demand curve= MRT

Question 31

what is the firm’s indifference curves?

Answer 31

isoprofit curve= MRS

Question 32

when does the firm maximize profits?

Answer 32

where MRS equals MRT

Question 33

deadweight loss

Answer 33

unexploited gains from trade bc there’s no competition

Question 34

total surplus is highest when…

Answer 34

demand = marginal cost (pareto efficient allocation)

Question 35

when we put price low…

Answer 35

more consumer surplus

Question 36

when we put price high because of monopoly…

Answer 36

there’s a monopoly rent- the company decreases consumer surplus

Question 37

DWL is when…

Answer 37

when because the price is set very high, all the people who didn’t buy it.

Question 38

DWL calculation

Answer 38

cost - the value you give

Question 39

when is total surplus highest?

Answer 39

Demand = Marginal Cost