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cct219: Media Economics I > Week 4: costs of production > Flashcards

Week 4: costs of production Flashcards

1
Q

Income elasticity (Ei)

A

the responsiveness of a product’s quantity demanded to changes in consumer income

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2
Q

Positive Income Elasticity

A

= normal good

ex. expensive cars

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3
Q

Negative Income Elasticity

A

= inferior good

ex. turnips

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4
Q

Cross-price elasticity (Exy)

A

the responsiveness of the quantity demanded of one product (x) to a change in price of another (y)

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5
Q

Positive Cross-Price Elasticity

A

= substitutable

ex. apples and oranges

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6
Q

Negative Cross-Price Elasticity

A

= complementary

ex. milk and cereal

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7
Q

Price Elasticity of Supply

A

measures the responsiveness of quantity supplied to changes in price

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8
Q

Elastic supply

A

quantity supplied greater than price

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9
Q

Inelastic supply

A

quantity supplied less than price

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10
Q

Perfectly elastic supply

A

• supply for which a product’s price remains constant regardless of quantity supplied
• a constant price and a horizontal supply curve

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11
Q

Perfectly inelastic supply

A

• supply for which a product’s quantity supplied remains constant regardless of price
• a constant quantity supplied and a vertical supply curve

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12
Q

Immediate run

A

• not enough time to react
• perfectly inelastic

ex. getting more resources (more supplies and new employees) will be difficult

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13
Q

Short run

A

• some time to react and get more resources
• either elastic or inelastic

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14
Q

Long run

A

more time to react and get more resources

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15
Q

Constant-cost industry

A

• increase in price increases production but not resource prices
• as new businesses enter the industry in the long run due to the higher price, this price is gradually pushed back down to its original level
• the long-run supply curve is perfectly elastic

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16
Q

Increasing-cost industry

A

• increase in price increases production and resource prices
• as new businesses enter the industry in the long run due to the higher price, this price is gradually pushed back down to its lowest possible level, but this level is higher than it was originally
• the long-run supply curve is very elastic

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17
Q

Formulas

A

• Income elasticity
• Cross-price elasticity
• Elasticity of supply

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18
Q

Excise taxes

A

• a tax on a particular product expressed as a dollar amount per unit of quantity
• such a tax creates a new supply curve (S1) seen by consumers
• it is vertically above the initial supply curve (S0) seen by producers
• the price seen by consumers is now higher than that seen by producers

ex. alcohol, cigarettes

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19
Q

Who pays Excise taxes?

A

• consumers and producers
• goes to gov not producers
• if producers don’t respond to tax they could lose revenue especially if their product is elastic

ex. $1 tax each pay $0.50

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20
Q

The Effect of Elasticity Supply Curve

A

the more elastic the demand curve the greater the proportion of an excise tax paid by producers

21
Q

The Effect of Elasticity Demand Curve

A

the more elastic the supply curve the greater the proportion of an excise tax paid by consumers

22
Q

Price Controls

A

• price floor
• price ceiling

23
Q

Price floor

A

• min price set above the equilibrium price
• creates surplus
• at top of graph

ex. min wages, agricultural goods

24
Q

Agricultural Price Supports

A

• they help overcome unstable agricultural prices
• economists assert that farmers win from these supports
• but consumers and taxpayers lose from these supports

25
Q

Price ceiling

A

• max price set below the equilibrium price
• creates shortage
• at bottom of graph

ex. rent

26
Q

Rent Controls

A

• they keep down prices of controlled rental accommodation
• economists assert that some (especially middle-class) tenants win from these controls
• but other (especially poorer) tenants lose from these controls

27
Q

3 Types of Production

A

• Primary sector
• Secondary sector
• Service sector (third)

28
Q

Primary sector

A

industries that extract or cultivate natural resources

ex. coal, oil

29
Q

Secondary sector

A

industries that make or process goods

ex. cars, phones, cookies

30
Q

Service sector (third)

A

• trade and information industries
• labour intensive
• involves people

ex. clay pottery

31
Q

Productive Efficiency

A

• making a given quantity of output with the least costly combination of inputs
• labour-intensive
• capital-intensive

32
Q

Labour-intensive

A

employs more labour and less capital

33
Q

Capital-intensive

A

employs more capital and less labour

34
Q

Economic costs

A

= explicit costs + implicit costs

35
Q

Explicit/accounting costs

A

• payments to resource supplies outside a business
• will always be greater than economic profit

36
Q

Implicit/opportunity costs

A

what owners give up by being involved in a business

37
Q

Economic profit

A

• = TR (P x Q) – economic costs
• if positive then there is reason for a firm to continue its operations

38
Q

Production in the Short Run

A

• some inputs (such as capital) are fixed
• other inputs (such as labour) are variable

39
Q

Fixed

A

things you can’t change

ex. amount of ovens, size of bakery

40
Q

Variable

A

things you can change

ex. hiring more people, buying more resources

41
Q

Total Product (q)

A

the total quantity of output derived from a given workforce (L)

42
Q

Product measures

A

• Average product
• Marginal product

43
Q

Average product

A

= q / L
(total product divided by the number of workers)

44
Q

Marginal product

A

= Δq / ΔL
(the change in total product (Δq) divided by the change in the number of workers (ΔL))

45
Q

Law of diminishing marginal returns

A

• the addition of more variable input causes marginal product to fall after some point
• average product also falls after some point

46
Q

Average value is rising

A

= marginal value is above

47
Q

Average value is falling

A

= marginal value is bellow

48
Q

Average value stays constant

A

= marginal value is equal

cct219: Media Economics I (12 decks)

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