Term
| How does a change in number of producers affect supply? |
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Definition
| Direct relationship - increase leads to increased supply |
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Term
| How does a change in production costs or technological advances affect supply? |
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Definition
| Inverse relationship - production costs go up, supply goes down |
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Term
| What effect do government subsidies have on supply? |
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Definition
| Direct relationship - subsidies effectually reduce the production costs, so there is an increase in supply |
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Term
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Definition
| Measures the percentage change in quantity supplied given a change in product price. Percentage change in qty divided by Percentage change in price. |
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Term
| How do government price controls affect supply? |
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Definition
| tend to limit the amount of goods supplied by holding the price artificially low |
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Term
| Effect of prices of other goods on supply |
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Definition
| Inverse relationship - if other goods can be produced with greater returns, producers will produce those goods |
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Term
| Effect of price expectations on supply |
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Definition
| Direct relationship - if prices are expected to rise, production will increase |
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Term
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Definition
| Equilibrium price is determined by demand and supply; it is the price at which all the goods offered for sale will be sold (QTY Demanded = QTY Supplied) It is where the demand and supply curves intersect. |
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Term
| What effect does demand have on equilibrium price? |
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Definition
| Direct relationship - equilibrium will increase and so will quantity purchased |
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Term
| How does a change in supply affect equilibrium price? |
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Definition
| Inverse relationship - increase in supply leads to decrease in price and increase in quantity purchased |
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Term
| Both demand and supply increase; what happens to equilibrium price? |
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Definition
| Indeterminate; quantity purchased will increase |
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Term
| Demand increases and supply decreases - what happens to equilibrium price? |
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Definition
| equilibrium price will increase and quantity purchased is indeterminate |
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Term
| Demand decreases and supply increases - what happens to equilibrium price? |
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Definition
| Decrease; qty purchased indeterminate |
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Term
| Marginal Propensity to Save |
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Definition
| the percentage of additional income that is saved. 1-MPC=MPS |
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Term
| Marginal Propensity to Consume (MPC) |
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Definition
| How much of each additional dollar in personal disposable income that the consumer will spend |
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Term
| Law of Diminishing Marginal Utility |
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Definition
| The more goods an individual consumes the more total utility the individual receives. However, the marginal utility from consuming each additional unit decreases. |
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Term
| Price Elasticity of Demand |
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Definition
| the sensitivity of demand to a change in price. Percent change in quantity demanded divided by percent change in price. |
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Term
| How does the price of other goods affect a product's demand? |
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Definition
| Direct relationship - if price of substitute goods rises, demand rises. (example: Cost of beef goes up, demand for pork goes up) |
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Term
| How does a change in price of complement products affect demand? |
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Definition
| Inverse relationship - price of hamburger increases demand for hamburger buns falls |
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Term
| How do price expectations affect demand? |
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Definition
| Direct relationship - price expected to rise, demand goes up (gasoline) |
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Term
| Impact of changes in consumer wealth on demand? |
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Definition
| Direct relationship - wealth goes up, demand goes up (except for inferior goods, which show decreased demand) |
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Term
| What effect do consumer tastes have on demand? |
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Definition
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Term
| Relationship between demand and market size |
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Definition
| Direct - market size increases, demand increases |
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Term
| Relationship between demand and a group boycott |
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Definition
| Inverse - demand falls during a boycott |
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Term
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Definition
| Price elasticity of demand = 1.0 |
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Term
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Definition
| sensitive to price changes - Price elasticity of demand > 1.0 |
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Term
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Definition
| not sensitive to changes in price; Elasticity of Demand < 1.0 |
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Term
| Relationship between price elasticity and total revenue |
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Definition
| Elastic - Inverse. Inelastic - Direct. If prices increase (decrease) then total revenue for products with elastic demand decreases (increases) and total revenue for products with inelastic demand increases (decreases). |
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Term
| Income Elasticity of Demand |
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Definition
| Measures the chnage in the quantity demanded of a product given a change in income. Percent change in qty demanded divided by percent change in income. |
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Term
| Cross-elasticity of Demand |
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Definition
| Measures the change in demand for a good when the price of a related or competing product is changed |
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Term
| Coefficient of cross-elasticity for substitute products, complementary products, and unrelated products. |
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Definition
Substitutes: E > 0
Complements: E < 0
Unrelated: E = 0 |
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Term
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Definition
Describes the relationship between changes in personal disposable income and consumption.
Formula: C = c0 + c1YD
Where:
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C = consumption for the period
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YD = Disposable Income for the period
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c0 = the constant
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c1 = the slope of the consumption function
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Term
| Law of Diminishing Returns |
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Definition
| As we try to produce more and more output with a fixed productive capacity, marginal productivity will decline. |
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Term
| When and how is the cost of production in the long run minimized? |
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Definition
When marginal product (MP) per dollar of every input (resource) is the same. Maximize the utility for production using the least cost formula.
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