MUN unit 2 econ

minimum wage

a minimum price that an employer can pay a worker for an hour of labor

income effect

the change in consumption resulting from a change in real income

marginal product of labor

the change in output from hiring one additional unit of labor

operating cost

the cost of operating a facility such as a store or factory

marginal cost

the cost of producing more than one product

demand

the desire to own something and the ability to pay for it

search costs

the financial and opportunity costs consumers pay when searching for a good or service

What is the law of supply?

the higher the price the larger the quantity produced

Explain how a market reacts to shifts in demand by moving to a new equilibrium?

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How does a market react to a fall in supply by moving to a new equilibrium?

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What is the relationship between prices and the profit incentive

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elasticity of supply

a measure of the way quantity supplied reacts to a change in price

price floor

a minimum price for a good or service

How do determinants such as input create changes in supply?

Any change in the cost of an input used to produce a good such as raw materials, machinery, or labor will affect supply. A rise in the cost of input will cause a fall in supply at all price levels because the goof has become more expensive to produce.

what are some factors that affect elasticity ?

Availability of substitutes,Relatice importance, Necessities vs luxuries

elasticity of demand

a measure of how consumers react to a change in price

Compare a market in equilibrium with a market in disequilibrium.

Disequilibrium occurs when quantity supplied is not equal to quantity demanded in a market. Disequilibrium can produce excess demand or excess supply. In the market of equilibrium, prices adjust to make the quantity supplied equal to the quantity demanded.

What are other influences on supply?

Future expectations of prices. Number of supplies: of more suppliers enter a market to produce a certain good, the market supply of the good will rise and the curve will shift to the right. There is a positive relationship between the number of suppliers in a market and the market supply of the good.

How does supply and demand create a balance in the market place?

If demand increases and supply remains unchanged, a shortage occurs, leading to a higher equilibrium price. If demand decreases and supply remains unchanged, a surplus occurs, leading to a lower equilibrium price. If demand remains unchanged and supply increases, a surplus occurs, leading to a lower equilibrium price. If demand remains unchanged and supply decreases, a shortage occurs, leading to a higher equilibrium price.

analyze the role of prices in a free market.

In a free market, prices are a tick for distributing goods and resources throughout the economy. Prices are nearly always the most efficient way to allocate or distribute resources.

what is the relationship between elasticity of supply and time?

In short terms a firm cannot easily change its output level so supply is inelastic. In the long run, firms are more flexible, so supply is more elastic

what can cause a shift in the demand curve?

Income, Consumer expectation, population, Consumer tastes and advertising

demand schedule for an individual and a market

Individual price of a slice quantity/day $.50 5 $1.00 4 $1.50 3 $2.00 2 $2.50 1 $3.00 0 Market price of a slice quantity/day $.50 300 $1.00 250 $1.50 200 $2.00 150 $2.50 100 $3.00 50

How do firms decide how much labor to hire to produce a certain level of output?

Owners have to consider how the number of workers they hire will effect their production. Entrepreneurs consider marginal benefits and costs when deciding how much output to produce. Firms earn their highs profits when the cost of making one more unit is the same as the market price of the good.

What are the advantages of a price based system?

Price as an incentive: buyers and sellers alike look at prices to find information on a goods demand and supply Price as signals: A relatively high price is a green light that tells producers that a specific good is in demand and that they should produce more. A low price is a red light to tell producers that a good is being overproduced flexibility: prices are much more flexible than output levels. Prices can be easily increased to solve a problem of excess demand and they can be just as easily decreased to eliminate a problem if excess supply. The price system is free

How does a price based system lead to a wider choice of goods and more efficient allocation of resources?

Price gives suppliers a way to allow consumers to choose among similar products. Prices also allow producers to target the audience they want with the products that will sell best to that audience. efficent resource allocation means that economic resources land labor and capital will be used for valuable purposes.

How does a firm decide to shut down and unprofitable business?

Sometimes keeping a money loosing factory open is the best choince. The factory should keep the factory open if the total revenue from the goods and services the factory produces is greater than the cost if keeping it open.

How does the government intervene in markets to control prices?

The government can impose a price ceiling or a maximum that can be legally charged for a good and also they can create a price floor or a minimum price for a good or service.

What are the effects of price ceilings and price floors?

The price ceiling increases the quantity demanded but decrease the quantity supplied If the minimum wage is set above the market equilibrium wage rate, the result is a decrease in employment. If the minimum wage is below the equilibrium rate, it will have no effect because employers would have to pay at least the equilibrium rate anyway to find workers in a free market.

Understand supply and demand in the global economy.

The supplies of imported goods are affected by changes in other countries. ex1: the US imports carpet from India. An increase in wages of Indian workers would decrease the supply of carpets tp the US market shifting the supply curve to the left. ex2: The US imports telephones from Japan. A new technology that decreases the cost if producing telephones would increase the supply of telephones to the US market shifting the supply curve to the right. Ex3: The US imports oil from Russia. A new oil discovery in Russia would increase the supply of oil to the right.

market supply schedule

a chart that lists how much of a good all suppliers will offer at different prices

supply schedule

a chart that lists how much of a good of a supplier will offer at a different price

fixed cost

a cost that does not change no matter how much a good is produced

variable cost

a cost that rises or falls depending on how much is produced

variable

a factor that can change

inferior good

a good that consumers demand less of when their income increases

norma good

a good that consumers demand more of when their income increases

subsidy

a government payment that supports a business or market

supply curve

a graph of the quantity supplied of a good at different prices

demand curve

a graphic representation of a demand schedule

centrius paribus

a latin phrase that means all other things held constant

increasing marginal returns

a level in production in which the marginal product of labor increases as the number of workers increases

diminishing marginal returns

a level of production in which the marginal product of labor decreases as the number of workers increases

black market

a market in which goods are sold illegally

price ceiling

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

rent control

a price ceiling placed on rent

supply shock

a sudden shortage of a good

rationing

a system of allocating scarce goods and services using criteria other than price

demand schedule

a table that lists the quantity of a good a person will buy at each different price

market demand schedule

a table that lists the quantity of a good all consumers in a market will buy at each different price

excise tax

a tax on the production or sale of a good

what are some determinants that create a change in price

advances in technology, new government taxes and subsidies, and changes in the prices of the raw materials and labor used to produce a good.

How does a firm choose output?

by determining what they need to produce to maximize the profit. The ideal level of output is where the marginal revenue is equal to the marginal cost. Any other quantity would generate less profit.

How does the change in the price of one good affect demand for a related good?

complements:two goods that are brought and used together subsitutes: goods used in place of another ski boots are complements of skis. if the price increases on snow boots the demand will decrease and caue fewer people to buy boots and skills too. snowboards are a substitute for skis.

law of demand

consumers buy more of a good when its price decreases and less when the price increases

spillover costs

costs of production that affect people who have no control over how much a good is produced

elastic

demand that is very sensitive to a price change

disequilibrium

describes any price or quantity not at equilibrium when quantity supplied is not equal to quantity demanded in a market

inelastic

describes demand that is not very sensitive to a price change

unitary elastic

describes demand whose elasticity is exactly equal to 1

total cost

fixed cost plus variable cost

Production costs of a firm: paying workers and purchasing capital are costs of producing goods.

fixed cost- a cost that does not change no matter how much of the good is produced. ex: the cost of a building, rent, machinery repairs, property taxes. variable cost-costs that rise or fall depending on the quantity produced. ex: costs of raw materials and some labor. electricity bills and heating bills of a company total cost: fixed costs plus variable costs Marginal cost: the cost of producing one more unit of a good.

substitutes

goods used in place of another

regulation

government intervention in a market that affects the production of a good

market supply curve

graph of the quantity supplied of a good by all suppliers at different prices

How do you calculate elasticity of demand?

percentage change in the demand of a good then divide it by the percentage change in price pof the good

quantity supplied

the amount a supplier is willing and able to supply at a certain price

supply

the amount of the good available

Interpret a demand graph using demand schedules

result of a demand schedule is a demand curve which is a graph representation of the demand schedule. They label the vertical axis with the lower possibilities at the bottom and the highest at the top. Label the quantities demanded on the horizontal axis with the lowest possibilities at the left and the highest at the right.

CHAPTER 4 explain the law of demand

says that when a goods price is lower, consumers will buy less of it; consumers buy more of a good when its price decreases and less when its price increases

shortage

situation in which quantity demanded is greater than quantity supplied; also known as excess demand

surplus

situation in which quantity supplied is greater than quantity demanded also known as the excess supply

What are three ways that the government can influence the supply of a good?

subsidies: a governement payment that supports a business or market. The government often pays a producer to set a subsidy fore each unit of a good produced. Taxes: excise tax ib the production or sale of a good. An excise tax increases production costs by adding an extra cost on each unit sold. Regulation: is government intervention in a market that affects the price quantity or quality of the good.

law of supply

tendency of suppliers to offer more of a good at a higher price

marginal revenue

the additional income from selling one more unit of a good sometimes equal to the price

equilibrium

the point at which quantity demanded and quantity supplied are equal

total revenue

the total amount of money a firm receives by selling goods or service

complements

two goods that are bought and used together

substitution effect

when consumers effect to an increase in a goods price by consuming less of it and more of another good

excess demand

when quantity demanded is more than quantity supplied

excess supply

when quantity supplied is more than quantity demanded

Interpret a supply graph using a supply schedule

when the data points in the supply schedule are graphed they create a supply curve. The horizontal axis measures the quantity gf the good supplied.

What is the difference between a change in quantity demanded and a shift in the demand curve?

when the price changes we move along the curve to a different quantity demanded. ex: a decrease in the price would lead to an increase in the quantity demanded. Shift in the demand curve: at every price consumers buy a different quantity than before.

How does the substitution effect and the income effect influence decisions?

when the price of pizza rises pizza becomes more expensive compared to other foods and the consumer has incentives for buying alternative cheaper foods= substitution if you buy fewer slices of pizza without increasing your purchases on other foods =income effect