Supply and Demand: Costs: and break even point

nature of choice-

a decision between two or more imperfect alternatives where the choice of one excludes the other

demand curve-

a graph of the relationship between the price of a good and the quantity demanded

price ceiling-

a maximum price set by the government below the equilibrium point (ex: concert tickets) help byers creates a shortage

fixed costs-

remain the same regardless of sales all the money you put in

consumer surplus-

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it -willing it pay at a cheaper price

producer surplus

the amount a seller is paid for a good minus the seller's cost of providing it -selling something: someone giving more price mechanism-

supply curve

A curve that shows the relationship between the price of a product and the quantity of the product supplied

elasticity of supply-

a measure of the way quantity supplied reacts to a change in price -very sensitive to changes in price -if supplies are not very responsive to changes in price, it's considered inelastic marginal cost curve

price floors-

a minimum price set by the government above the equilibrium point (ex:milk) help sellers creates a surplus -set above equilibrium -minimum selling P -surplus -distort markets -reduce economic welfare

equilibrium price-

buyer's and seller's are equal (212) Mult. Buyers and Mult. Sellers Ex. Buying Art (state of market place) Buyers Will Pay. Sellers Will Take 1) 300 1) 100 2) 280 2) 110 3) 260 3) 150 4) 240 4) 170 5) 220 5) 200 6) 210 6) 215 7) 200 7) 250 8) 180 8) 260 9) 170 10) 150 Price # of buyer's # of seller's 300 1 8 280 2 8 260 3 8 240 4 6 220 5 6 210 6 5 215 5 6 212 5 5 (equilibrium price) demand supply

income elasticity of demand-

can be used to distinguish normal from inferior goods normal goods= income elasticity is positive inferior goods= income elasticity is negative

variable costs-

change based on your sales activities

Demand elasticity-

economic concept of elasticity price elasticity of demand cross elasticity of demand income elasticity other elasticity measures elasticity of supply

nature of costs-

explicit costs -accounting costs economic costs -implicit costs -alternative or opportunity costs relevant costs -incremental costs -sunk costs are irrelevant

cross-price elasticity-

goods are substitutes when the cross price elasticity of demand is positive goods are complements when the cross price elasticity of demand is negative

elasticity-

how much you are going to make when you are going to break even

elasticity of demand and supply-

how responsive are your customers to price change defined as proportionate change in quantity demanded to proportionate change in price price elasticity of demand measures the responsiveness of demand of a commodity to a change in its price

Variable vs fixed costs-

variable costs -raw materials costs -costs of energy and fuel -production workers labor costs -commissions -delivery costs -packaging supplies -labor costs -material costs fixed costs -depreciation costs -salaries of administrative staff -interest payments -utility services and security -leases -insurance -rent -taxes

contribution margin method-

variation of the equation method break-even point in units sold = fixed expenses / unit contribution margin break-even point in total sales dollars= fixed expenses / CM ratio Ex: what it costs you to make it and how much you sell it? Fixed costs - $2,000 Total cost to make - $20 Variable costs - $10 Total cost - variable = contribution margin 20- 10 = 10 (contribution margin) fixed expenses / unit contribution margin= break even point 2,000 / 10 = 200 (break even point) variable cost ex: -raw materials -labor costs -delivery costs -packaging supplied fixed costs ex: -insurance -rent -taxes -salaries of administrative staff -interest payments

opportunity costs-

what could I have done if I didn't make that choice