Economics Q3 Exam Pt 2: Microeconomics
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.