COBECON Midterms Reviewer

excess supply (surplus)

exists when quantity supplied exceeds quantity demanded

Output/product market

firms supply, households demand

Total fixed cost

overhead cost

income effect

shows the change in purchasing power caused by changes in prices

price elasticity of demand

% change in quantity demanded / % change in price

Midpoint formula

(Q2-Q1)/[(Q2+Q1)/2]X100 / (P2-P1)/[(P2+P1)/2]X100

unemployment qualifications

-15 years and over as of their last birthday - w/ work, available for work, and or seeking/ not seeking for work.

Elasticity of Supply

-measures the response of quantity of a good supplied to a change in the price of that good. %change in quantity supplied/%change in price

Total (economic) cost

-out of pocket costs (explicit or accounting costs) -opportunity cost of all inputs or factors of production (implicit costs)

Firms

-primary producing units in an economy -exist when a person or group decides to produce a product by transforming inputs into outputs -most firms exist to make a profit but some do not.

Households

-the consuming units in an economy -Consist of any number of people

labor supply curve

A curve that shows the quantity of labor supplied at different wage rates. Its shape depends on how households react to changes in the wage rate.

Entrepreneur

A person who organizes, manages, and takes on the risks of a firm.

Fixed Costs

Costs that do not vary with the firm's output

Total Revenue

Price x Quantity

marginal product

The additional output that can be produced by adding one more unit of a specific input, ceteris paribus.

shift of demand curve

The change that takes place in a demand curve corresponding to a new relationship between quantity demanded of a good and price of that good. The shift is brought about by a change in the original conditions.

shift of a supply curve

The change that takes place in a supply curve corresponding to a new relationship between quantity supplied of a good and the price of that good. The shift is brought about by a change in the original conditions.

equilibrium

The condition that exists when quantity supplied and quantity demanded are equal. At equilibrium, there is no tendency for price to change.

short-run supply curve

The marginal cost curve above the minimum point on the average variable cost curve.

utility-maximizing rule

The principle that to obtain the greatest utility, the consumer should allocate money income so that the last dollar spent on each good or service yields the same marginal utility.

spreading overhead

The process of dividing total fixed costs by more units of output. Average fixed cost declines as quantity rises.

Queuing

Waiting in line as a means of distributing goods and services: a nonprice rationing mechanism.

law of diminishing returns

When additional units of a variable input are added to fixed inputs after a certain point, the marginal product of the variable input declines.

price rationing

When quantity demanded exceeds quantity supplied, price tends to rise. When the price in a market rises, quantity demanded falls and quantity supplied rises until an equilibrium is reached at which quantity demanded and quantity supplied are equal.

movement along a demand curve

a change in the quantity demanded of a good that is the result of a change in that good's price

movement along the supply curve

a change in the quantity supplied of a good arising from a change in the good's price

minimum wage

a floor set for the price of labor

Substitutes

a good is a substitute when an increase in the price of one good causes the demand for the other good to increase

demand curve

a graph of the relationship between the price of a good and the quantity demanded

total variable cost curve

a graph that shows the relationship between total variable cost and the level of a firm's output

supply curve

a graphical representation of the information presented in the supply schedule. It shows how much a product firms will sell at different prices.

black market

a market in which illegal trading takes place at market-determined prices.

Price Ceiling

a maximum price that can be legally charged for a good or service

Production efficiency

a state in which a given mix of outputs is produced at the least cost

marginal revenue

additional revenue that a firm takes in when it increases output by 1 unit.

constant returns to scale

average costs do not change with the scale of production

firms and households

basic decision-making units

price takers

buyers and sellers must accept the price the market determines

Law of demand

ceteris paribus, as price rises, quantity demand decreases; while as price falls, quantity demand increases.

point elasticity

change in Q/change in P * P/Q

change in demand

change in any other factor (income, preference)

Change in the price of a product

change in quantity demanded for that product in that period.

Input and output markets

circular flow

Variable costs

costs that depend on the level of output chosen.

Production Possibilities Frontier (PPF)

depicts different combinations of goods and services that can be produced if resources are used efficiently

substitution effect

describes how consumption is affected by the changes in price, relative to other alternatives

Perfect competition

exists in an industry that contains many relatively small firms producing identical or homogenous products.

Demands in product/output markets

factors that affect decision-making on households -price of a product -income available to households -household's accumulated wealth -prices of other products available -tastes and preferences of household -household's expectation about future income, wealth and prices

economies of scale

factors that cause a producer's average cost per unit to fall as output rises

input/factor markets

firms buy inputs from households to produce goods and services.

Prices of related products

firms often react to changes in the price of related products

Cost of production

for a firm to earn profit, revenue must exceed costs. considerations: * price of the good or service * cost of producing products (inputs, technologies)

Consumer Goods

goods produced for present consumption

elasticity of labor supply

measures the response of labor supplied to a change in the price of labor (the wage rate) % change in quantity of labor supplied / % change in wage rate

Income Elasticity of Demand

measures the responsiveness of quantity demanded to changes in income

Cross-price elasticity of Demand

measures the responsiveness of the quantity of Y demanded of one good to a change in the price of a another good

price floor

minimum price below which exchange is not permitted

Quantity demanded

number of units of a product that a households would buy if it could buy all it wanted at the current market price.

optimal method of production

one that minimizes costs for a given level of output

Price System

performs two important functions: - provide an automatic mechanism for distributing scarce goods and services (price rationing) -determines both the allocation of resources among producers and the final mix of outputs.

short-run

period during which the business has a fixed scale factor of production and there is neither exit nor entry from the business.

Investment

process of using resources to produce capital

law of diminishing marginal utility

rule stating that the additional satisfaction a consumer gets from purchasing one more unit of a product will lessen with each additional unit purchased

long-run average cost curve

shows how costs vary with scale of operation.

demand schedule

shows how much of a product an individual/households is willing to purchase at different prices for a given time period.

supply schedule

shows how much of a product firms will sell at alternative prices

comparative advantage

specialization and free trade will benefit all trading parties

market supply

sum of all that is supplied by all producers of a single product for a specific period

Market demand

sum of all the quantities of goods and services demanded per period, by all households in the market.

Income

sum of all wages, profits, interest, pmts, rents, and other form of earnings received by the household in a given period of time.

capital-intensive technology

technology that relies heavily on capital instead of human labor

labor-intensive technology

technology that relies heavily on human labor instead of capital

production technology

tells us specific quantities of inputs needed to produce any given service or good

Marignal Utility

the additional satisfaction gained by the consumption or use of one more unit of good or service

Quantity supplied

the amount of a particular product that firms would be willing and able to offer for sale at a particular price during a given period of time.

average product

the average amount produced by each unit of a variable factor of production total product/total units of labor

Elasticity

the concept is used to quantify the response in one variable when another variable changes.

excess demand (shortage)

the condition that exists when quantity demanded exceeds quantity supplied at the current price

Marginal Cost

the cost of producing additional units required to produce each successive unit of output.

Long-run

the decision period over which firms can choose to expand or contract all of their factors of production; there are no fixed factors of production

Producer surplus

the difference between the current market price and the cost of production for the firm

consumer surplus

the difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer pays

improved productivity

the discovery and application of new more efficient production techniques.

Land market

the input market where households supply land or other real property, in exchange for rent.

labor market

the input/factor market in which households supply work for wages to firms that demand labor

capital market

the input/factor market where households supply their savings to firms, in exchange for interest claims and future profits

budget constraint

the limits imposed on household choices by income, wealth, and product prices

shutdown point

the minimum point on a firm's average variable cost curve; if the price falls below this point, the firm shuts down production in the short run

law of supply

the positive relationship between price and quantity of a good supplied.

law of diminishing marginal utility

the principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time

Production

the process through which inputs are combined and transformed into outputs

production function

the relationship between the inputs employed by a firm and the maximum output it can produce with those inputs

choice set

the set of options that is defined and limited by a budget constraint

Slope

the slope of a demand curve may reveal the responsiveness of quantity demanded to price changes. However, it is an inadequate measure because its value depends on the units of measurement used.

minimum efficient scale (MES)

the smallest size at which long-run average cost is at its minimum

deadweight loss

the total loss of producer and consumer surplus from underproduction or overproduction

Total Variable Cost (TVC)

the total of all costs that vary with output in the short run

total utility

the total satisfaction a product yields

Wealth

the total value of what the household owns minus what it owes

Favored customer

those who receive special treatment from dealers during situations of excess demand

ration coupons

tickets or coupons that entitle individuals to purchase a certain amount of a given product per month

Average total costs (atc)

total cost divided by the quantity of output. -sum of average fixed cost and average variable cost

Average Fixed Cost (AFC)

total fixed costs divided by quantity of output

Total Cost

total fixed costs plus total variable costs

Profit

total revenue - total cost

economic profit

total revenue - total economic cost

Average Variable Cost (AVC)

total variable costs divided by quantity of output

concept of utility

we consume goods or services because it provides us utility or satisfaction.

absolute advantage

when an economic agent can produce goods or services using fewer resources, compared to another economic agent.

Disconomies of scale

when an increase in a firm's scale of production leads to higher average costs.

complements

when two goods are complements, a decrease in the price of one good, results to an increase in demand for the other good, and vice versa.

AVC's minimum point

where marginal cost intersects average variable costs

Economic Growth

An increase in the total output of the economy. It occurs when society either acquires new resources or learns to produce more with existing resources.

capital goods

Buildings, machines, technology, and tools needed to produce goods and services. Is everywhere; does not need to be tangible

normal goods

Goods for which demand goes up when income is higher and for which demand goes down when income is lower.

inferior goods

Goods for which demand tends to fall when income rises.