Key Concepts in Economics and Supply Analysis
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'
