Economics Chapter 4.3-5 Flashcards

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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?

Type of elasticity where a change in price causes a relatively smaller change in quantity demanded. Signup and view all the answers

What is unit elastic?

Type of elasticity where a change in price causes a proportional change in quantity demanded. Signup and view all the answers

What is supply?

Amount of a product offered for sale at all possible prices. Signup and view all the answers

What is the Law of Supply?

Principle that more will be offered for sale at higher prices than at lower prices. Signup and view all the answers

What is a supply schedule?

A table showing how much a producer will supply at all possible prices. Signup and view all the answers

What is a supply curve?

A graph that shows the different amounts of a product supplied over a range of possible prices. Signup and view all the answers

What is a market supply curve?

A graph that shows the various amounts offered by all firms over a range of possible prices. Signup and view all the answers

What is quantity supplied?

Amount offered for sale at a given price. Signup and view all the answers

What is a change in quantity supplied?

Change in amount offered for sale when the price changes. Signup and view all the answers

What is a change in supply?

Situation where different amounts are offered for sale at all possible prices in the market; shift of the supply curve. Signup and view all the answers

What is a subsidy?

Government payment to encourage or protect a certain economic activity. Signup and view all the answers

What is supply elasticity?

A measure of how the quantity supplied responds to a change in price. Signup and view all the answers

What is a production function?

A graph showing how a change in the amount of a single variable input changes total output. Signup and view all the answers

What is the short run in production?

Production period so short that only the variable inputs (usually labor) can be changed. Signup and view all the answers

What is the long run in production?

Production period long enough to change the amounts of all inputs. Signup and view all the answers

What is total product?

Total output of production by a firm. Signup and view all the answers

What is marginal product?

Extra output due to the addition of one more unit of input. Signup and view all the answers

What are the stages of production?

Phases of production that consist of increasing, decreasing, and negative marginal returns. Signup and view all the answers

What are diminishing returns?

Stage where output increases at a decreasing rate as more units of variable input are added. Signup and view all the answers

What are fixed costs?

Costs that remain the same regardless of level of production or services offered. Signup and view all the answers

What is overhead?

Broad category of fixed costs that includes rent, taxes, and executive salaries. Signup and view all the answers

What are variable costs?

Production costs that change when production levels change. Signup and view all the answers

What is total cost?

The sum of fixed costs and variable costs. Signup and view all the answers

What are marginal costs?

Extra cost of producing one additional unit of production. Signup and view all the answers

What is e-commerce?

Electronic business conducted over the internet. Signup and view all the answers

What is the break-even point?

Production level where total cost equals total revenue. Signup and view all the answers

What is total revenue?

Total amount earned by a firm from the sale of its products. Signup and view all the answers

What is marginal revenue?

Extra revenue from the sale of one additional unit of output. Signup and view all the answers

What is marginal analysis?

Decision making that compares the extra costs of doing something to the extra benefits gained. Signup and view all the answers

What is the profit maximizing quantity of output?

Level of production where marginal cost is equal to marginal revenue. Signup and view all the answers

How does the price of an item affect the quantity supplied?

Price increase: less quantity is sold at a higher price. Price decrease: more quantity is sold at a lower price. Signup and view all the answers

What is the difference between a change in supply and a change in quantity supplied?

A change in supply is where different amounts are offered at all possible prices, whereas a change in quantity supplied is when change in amounts offered for sale when the price changes. Signup and view all the answers

How does marginal product change in each of the three stages of production?

Stage I = increase; Stage II = decrease; Stage III = negative. Signup and view all the answers

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!