Econ Unit 2
Terms
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- Define the Substitution Effect.
- When prices increase on one product they will buy a substitute product instead, but when prices decrease on a product consumers will return to the non-substitute
- Define complements.
- products that are used together. (like a cd player and head phones)
- How is the Law of Deminishing Marginal Utility defined?
- As we have more units of a product the satisfaction we get from each additional unit decreases.
- Define mirginal.
- additonal, next or last
- Define Utility.
- Satisfaction
- What are the reasons for changes in demand?
- 1)change in ppl's income 2)ppl's tastes and preferences change 3)change in situation or want for change 4)change in the number of consumers in market 5)Expecation of future price 6)The prices of substitutes or complements change
- Define Supply.
- The different quantities that a producer(s) will make avaliable to the market at different prices over a given period of time.
- How is the Law of Supply Defined?
- As prices increase, producers are willing to produce and sell more. As price decreases, producers are willing to produce and sell less.
- Define Fixed Costs.
- costs that don't change as production levels change.
- Define Variable Costs.
- Costs that increase and decrease with changes in the production levels.
- What are the reasons for change in supply?
- 1)Change in production costs 2)Change in number of producers in market 3)Profitability of other producation options 4)Expecation of future market price
- Define Equilibrium.
- The price at which the quantity supplied equals the quantity demanded.
- Define Subsidies.
- The opposite of taxes, when the govt gives $ to businessses
- Define Price Controls.
- When the govt. dictates that price for the product.
- Define Marginal Produt.
- The change in the total outpur associated with each additional input of labor.
- Define Elasticities.
- They show the extent to which one variable responds to another.
- What determines Elasticity?
- 1)The Availability of substitutes 2)Amount of consumer's budget 3)Time frame 4)Necessity or Luxury
- How do you calculate the Elasticity of Demand?
- Find the % change of both quantity and price. Divide the % change in quantity by the % change in price. If the answer = > 1 it is elastic, = < 1 it is inelastic, = 1 it is unitary.
- How do you determine the elasticity of supply?
- If it is complex to produce it is inelastic, if it is simple to produce it is elastic.