Economics Q3 Exam Pt 2: Microeconomics

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Substitution Effect

When a price of a good increases beyond what a consumer views it at, the consumer will substitute it for another good.

ceteris paribus

assumption made in economic graphs to hold things constant except for proce

elastic supply

very responsive to a change im price; can change production cycle, inputs; long run

income effect

when prices increase, and income stays the same, purchasing power reduced and consumer changes behavior accordingly.

equilibrium

where demand and supply are equal in both price and quantity. Qd=Qs

demand

willing and able to buy a good

supply

willing and able to produce/sell product

law of demand

as P increases, Qd decreases. as P decreases, Qd increases.

law of supply

as P increases, Qs increases. as P decreases, Qs decreases

maximize profit

MR=MC

NITES

Number of Producers Input Costs Technology Expectations Subsidies, taxes, regulations

marginal cost

additional cost of producing one more unit

marginal revenue

additional income when one more unit is sold

Marginal Product

change in total output when one more worker is added.

variable cost

cost that changes with production

fixed cost

cost that does not change with production

total cost

fixed costs + variable costs

elasticity of demand

how consumers react to a change in price

quantity demanded

how much of a good one is willing and able to buy

quantity supplied

how much willing and able to produce/sell product.

elasticity of supply

how producers react to a change in price

elastic demand

large reaction to a change in price. luxuries, hobbies, substitutes. cookies & gold watches.

inelastic supply

not very responsive to change in price; can not change production cycle, inputs; short run

total reveune

price x quantity. income from selling products

profit

profit = total revenue - total cost

inelastic demand

small reaction to a change in price. necessities. medicine, gasoline. if a product is inelastic, producer can raise price to increase total revenue.


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