ECO Content Quiz #1
network effect
the effect that occurs when a good becomes more useful because other people begin to/will use it ex. TikTok growing in popularity
marginal benefit
the extra benefit of adding one unit
fixed costs
costs that do not vary with production or sales level
variable costs
costs that vary directly with the level of production
P E P T I C
Preferences Expectations of future market/prices Prices of related goods Time and # of buyers Income Congestion and network effects
market demand curve
the sum of the quantity demanded by each individual/market at each price.
economic surplus
the total benefits minus total costs from a decision
what does opportunity cost say about resources?
they are limited
what factor only changes market demand curve without changing the individual demand curve?
type and number of buyers
you pay $13 to see a movie, but one hour into the movie, you're bored. do you stay until the end? is this a high or low opportunity cost?
$13 should not influence the decision because you can not get it back. The opportunity cost of the alternative use of the extra hour is higher than the benefit of staying
law of supply
producers offer more of a good as its price increases
you purchase $35 halloween costume for a party but now you don't feel well. you can not return the costume, though. do you go to the party?
$35 should not influence decision because it is a sunk cost
4 dependencies of interdependence principle
1. dependency between individual choices 2. dependency between people/businesses in the smae market 3. dependency between markets 4. dependency through time
suppose a deli is willing to sell 200 sandwiches for $10. if the price falls to $8, how many sandwiches would they be willing to sell?
100 sandwiches
suppose the marginal benefit of 1st coffee cup is $4, of your second is $3, and of your third is $2. If the price of coffee is $3, how many cups should you buy?
2 cups
suppose you and your 99 classmates all have identical marginal benefits for coffee: the marginal benefit of the 1st cup is $4, the second is $3, the third is $2. if the price is $3, what is the quantity demanded by the entire market?
200 cups individuals would buy 2 cups because after 2 cups, the marginal benefit is less than the cost. then, scale up for 100 customers - 200 cups
complementary goods
Goods that are commonly used with other goods demand for a good will decrease if the price of complementary good increases
use MCOI to choose best quantity to supply
M: should i supply one more unit? C: you should produce one more unit if the price is greater than or equal to marginal cost O: compare cost of producing another unit to next best alternative... should i supply one more unit OR...? I: best option depends on other choices/expectations of the future
sunk cost
a cost that has already been paid and cannot be recovered
Inferior good
a good that consumers demand less of when their incomes increase ex. ramen noodles
Normal good
a good that consumers demand more of when their incomes increase ex. new car
perfectly competitive market
all firms in industry sell identical goods
what would decrease the quantity demanded?
an increase in current price
rational rule for buyers
buy more of an item if its marginal benefit is greater than (or equal to) the price
two types of related goods
complementary and substitute
law of demand
consumers will buy more of a good when its price is lower ; holding other things constant
marginal cost
cost of an extra unit
you decide reading the textbook tonight will help with your economic surplus in the future in class. what dependency is this?
dependency through time
why is the demand curve downward sloping?
diminishing marginal benefit
diminishing marginal benefit
each item yields a smaller marginal benefit than previous item AKA as you consume more of a good, your willingness to pay for an additional unit declines
substitute goods
goods that can be used to replace the purchase of similar goods when prices rise
good example of marginal benefit
ice cream: first scoop- the benefits are sweet and great... start to feel full and sick after each additional scoop
The cost-benefit principle indicates that an action should be taken
if the benefit is greater than or equal to the cost
how do expectations shift demand?
if you believe prices will rise, you buy today (increasing demand) if you believe prices will fall, you buy tomorrow (decreasing demand)
individual demand curve
illustrates the relationship between quantity demanded and price for an individual consumer at each price
individual supply curve
illustrates the relationship between quantity supplied and price for an individual seller
what does rational rule state about marginal benefit?
keep adding one more unit until marginal benefit = marginal cost
rational rule for sellers
price is greater than or equal to marginal cost
if a price changes, where does change take place?
slide along demand curve
opportunity cost
the cost of the next best alternative use of money, time, or resources when one choice is made rather than another
if the quantity demanded changes, where does this change take place?
the demand curve shifts with changes in demand
congestion effect
the effect that occurs when a good becomes less valuable because other people begin to/will use it ex. accident on highway creates delays and traffic
does IDC hold other things constant?
yes
you are suppliers of labor. what happens to the number of hours you are willing to work as wage raises?
you are willing to work more hours as the price per hour increases