Key Concepts in Economics and Supply Analysis

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Unitary elastic supply curve

=1.

Utility maximization

A consumer maximizes utility by looking at the tangency of the budget line and the indifference curve.

Determinants of supply

All of the following are determinants of supply except income.

Maximize output

An Iowa corn producer who has studied economics will desire to

Profit-maximizing level of all inputs

An Iowa corn producer who has studied economics will desire to use

Hamburgers and hamburger buns

An example of complements.

Indifference curve

At all points along an indifference curve, an individual is realizing the same level of utility

Consumer purchases of chicken and beef

Consumer purchases of chicken will decrease, and purchases of beef will decrease.

Consumer's equilibrium

MRS = P1/P2

Blue jeans elasticity

More elastic than all pants.

Farm value percentage

for every dollar spent in the grocery store, what percent is the farm value? 15

Income elasticity of demand for food

Greater than 0.

Inferior good

Has a negative income elasticity.

Inelastic supply curve

Has a steep slope.

Elasticity measures

How responsive one variable is to another.

Marginal utility

If TU is increasing, then MU is positive

Price of gasoline

If the price of gasoline increases significantly for several months: consumers will purchase fewer large sports utility vehicles

Price of organic food

If the price of organic food decreases relative to food produced with chemicals, then farmers will plant more acres to organic food

Sugar (sucrose) and corn syrup (fructose)

Imperfect substitutes in production and consumption.

Technological change

Shifts the supply curve to the right.

Supply schedule

Shows how quantity supplied changes with different prices.

Market supply curve

Slopes up due to the Law of Supply.

Elasticity of supply

Tells how responsive supply is to changes in price.

Cross-price elasticity of supply

The cross-price elasticity of supply of corn and wheat is positive.

Price below minimum AVC

The firm's supply equals zero.

Price increase and quantity demanded decrease

The good is unitary elastic.

Economics

the allocation of scarce resources among non-competitive ends

Opportunity set

the collection of all combinations of goods that are affordable

Increase in the price of textbooks

Could be caused by an increase in the demand for college degrees.

Market demand curve for wheat

Derived by the horizontal summation of all individual wheat demand curves.

Backward supply curves

Due to Alfred Marshall.

Individual firm's supply curve

Equals MC above the shut-down point.

Least elastic demand curve

Food.

Increase in the price of soybeans

Results in a decrease in the supply of wheat and increase in the quantity supplied of soybeans.

Increase in the number of greenhouses

Results in an increase in the supply of flowers.

Good year for wheat farmers

The price of wheat will decrease.

Supply

The relationship between the price of a good and amount available.

Price of oil increases

The supply of natural gas will decrease.

Law of Demand

There is an inverse relationship between price and quantity demanded.

Elasticities

Unitless.

Cardinal utility

When an economist says that an apple gives a quantifiable level of utility

Budget line

Which of the following is not needed to construct a budget line: total utility from the consumption of the goods

Increase in the price of fertilizer

Will cause a shift in the supply of fertilizer.

Drought

Will decrease the supply of grains.

Increase in income

Will expect an increase in the demand for golf courses.

Individual demand curve for pizza

can be derived with the price of pizza, the price of one other good, and income

Ceteris paribus

holding all else constant

Utils

imaginary numbers that measure satisfaction

Law of Diminishing Marginal Utility

implies that the first unit consumed is the best

Food supply chain

includes all except: farm services, processors, marketers, consumers

Tangency of an indifference curve and a budget line

is found where the slope of the indifference curve (MRS) is equal to the price ratio

Scarcity

is the fundamental principle of economics

Agribusiness management

making good economic decisions in a rapidly-changing industry

Marginal rate of substitution

the slope of the indifference curve

Macroeconomics

the statement, 'The price of wheat should be higher'

Microeconomics

the statement, 'The price of wheat should be higher'

Normative economics

the statement, 'The price of wheat should be higher'

Positive economics

the statement, 'The price of wheat should be higher'


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