Questions and Answers
What is elasticity?
A measure of responsiveness that shows how one variable responds to a change in another variable.
What is demand elasticity?
A measure that shows how a change in quantity demanded responds to a change in price.
What does elastic mean in economics?
Type of elasticity where a change in price causes a relatively larger change in quantity demanded.
What does inelastic mean in economics?
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What is unit elastic?
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What is supply?
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What is the Law of Supply?
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What is a supply schedule?
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What is a supply curve?
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What is a market supply curve?
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What is quantity supplied?
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What is a change in quantity supplied?
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What is a change in supply?
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What is a subsidy?
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What is supply elasticity?
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What is a production function?
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What is the short run in production?
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What is the long run in production?
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What is total product?
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What is marginal product?
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What are the stages of production?
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What are diminishing returns?
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What are fixed costs?
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What is overhead?
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What are variable costs?
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What is total cost?
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What are marginal costs?
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What is e-commerce?
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What is the break-even point?
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What is total revenue?
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What is marginal revenue?
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What is marginal analysis?
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What is the profit maximizing quantity of output?
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How does the price of an item affect the quantity supplied?
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What is the difference between a change in supply and a change in quantity supplied?
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How does marginal product change in each of the three stages of production?
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Study Notes
Elasticity Concepts
- Elasticity measures responsiveness between variables, indicating how one variable changes in relation to another.
- Demand elasticity evaluates how the quantity demanded reacts to price changes, revealing consumer sensitivity to price fluctuations.
- An elastic demand indicates a significant change in quantity demanded due to a price change, making consumers highly responsive.
- Inelastic demand suggests a minor change in quantity demanded when prices fluctuate, showing less consumer response.
- Unit elastic demand denotes a proportionate change in quantity demanded relative to price changes, with a one-to-one relationship.
Supply Fundamentals
- Supply refers to the quantity of a product available for sale across various price levels.
- The Law of Supply indicates that as prices rise, more products will be offered for sale, reflecting direct correlation.
- A supply schedule is a tabulated representation that displays how much producers are willing to supply at different prices.
- A supply curve graphically represents the quantity of a product supplied across various prices, illustrating supply behavior.
- The market supply curve aggregates amounts supplied by all firms at varying prices, showcasing overall market supply dynamics.
Quantity and Change in Supply
- Quantity supplied refers to the specific amount available for sale at a predetermined price.
- Change in quantity supplied occurs when the offered amount alters due to price changes, without affecting the entire market supply.
- Change in supply involves a complete shift in the supply curve, where the availability of goods changes across all price levels.
Government Intervention and Supply Elasticity
- Subsidies are government payments aimed at stimulating or safeguarding specific economic activities, altering supply dynamics.
- Supply elasticity measures the sensitivity of quantity supplied in response to price changes, impacting production decisions.
Production Processes
- The production function illustrates how altering one variable input (e.g., labor) affects total output, providing insight into productivity.
- The short run is characterized by a timeframe where only variable inputs can be modified, limiting flexibility in production capacity.
- The long run allows for adjustments to all inputs, showcasing the complete flexibility of production operations.
- Total product indicates the overall output produced by a firm, essential for assessing production efficiency.
Marginal Product and Stages of Production
- Marginal product is the additional output generated from increasing one unit of input, critical for optimizing resource allocation.
- Stages of production consist of three distinct phases: increasing returns (Stage I), diminishing returns (Stage II), and negative returns (Stage III).
Cost Structures
- Fixed costs remain constant, independent of production levels, including expenses like rent and salaries.
- Overhead encompasses broad fixed costs, which include standard operating expenses like management salaries and taxes.
- Variable costs fluctuate with production changes, reflecting the costs directly tied to output levels.
- Total cost is the cumulative sum of fixed and variable costs, essential for financial planning.
- Marginal costs represent the additional expense incurred by producing one more unit, aiding pricing decisions.
Revenue and Profit Analysis
- E-commerce refers to business activities conducted online, emphasizing the importance of digital marketplaces.
- The break-even point identifies the production level where total cost and total revenue are equal, crucial for viability analysis.
- Total revenue is the cumulative earnings from product sales, integral for assessing business performance.
- Marginal revenue indicates the additional income generated from selling one more unit, playing a key role in revenue strategy.
- Marginal analysis involves evaluating the extra costs versus benefits of decisions, guiding efficient resource allocation.
- The profit-maximizing quantity of output occurs when marginal cost aligns with marginal revenue, optimizing profitability.
Key Differences in Supply Dynamics
- Price changes dictate supply responses, where a price increase typically leads to lower demand, while a price decrease can stimulate higher demand.
- A change in supply affects overall availability across all price points, versus a change in quantity supplied, which is a direct result of price adjustment.
- Marginal product transitions through production stages, first increasing, then decreasing, and potentially becoming negative as inputs continue to rise.
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Test your knowledge with these flashcards on elasticity concepts from Economics Chapter 4.3-5. Learn about demand elasticity and the responsiveness of variables in economic contexts. Perfect for reinforcing your understanding of essential economic principles!