Econ Redo 3

Front 1

Define supply

Back 1

Your willingness to be paid to produce given the economic environment - think like an owner NOT like a consumer!

Front 2

FC#10: Explain the graph as it applies to the law of supply:

Back 2

If the price is $3.69 you might be willing to pay 3.69. As the owner, are you willing to produce 1 sandwhich. Pay me $10 and I'm willing to work hard and produce 3 sandwhiches.

Front 3

FC#11: Explain the graph as it pertains to the law of supply:

Back 3

Price change only!
* Called change in QUANTITY supplied
* Economy moves along SAME SUPPLY CURVE.

Front 4

If the price changes, what does that do to your willingness to produce?

Back 4

It also changes

Front 5

If Price increases, what does that do to your willingness to produce? What is that called?

Back 5

if price increases, your willingness to produce increases - called INCREASE IN QUANTITY SUPPLIED

Front 6

If price decreases, what does that do to your willingness to produce? What is that called?

Back 6

if price decreases, your willingness to produce decreases - called DECREASE IN QUANTITY SUPPLIED

Front 7

*CRITICAL* A change in price is a change in?

Back 7

quantity supplied!

Front 8

FC#12: Explain the graph as it pertains to changes in supply environment:

Back 8

1. due to environmental change, you are willing to produce the same amount ONLY if you eat a higher price
2. Willingness to produce Q has decreased
3. Whole new supply curve w/change in economic enviro

Front 9

*WARNING* A decrease in supply looks like supply went up on a graph - we need to be thinking in terms of what?

Back 9

increase or decrease - NOT up and down!

Front 10

A change in Economic environment is called

Back 10

Change in supply. Note that the term quantity is missing!

Front 11

What 5 things affect supply environments

Back 11

1. cost of factors of production
2. technology
3. # of sellers in market
4. Price of other goods you could produce
5. Expectations of future prices

Front 12

If the price of veggies goes up because hurricanes and floods wipe out tomatoes in FL & CA; what is that called?

Back 12

change in cost of factors of production

Front 13

FC#13: Explain the graph as it pertains to supply of environment:

Back 13

Graph shows a decrease in supply
1. Need a higher price to buy more expensive toms to produce same sandwich
2. Same price won't buy enough toms to produce the complete sandwich

Front 14

FC#14: Explain the graph as it's meant when supply meets demand:

Back 14

1. Po - price is so low, everyone is willing to buy but few willing to produce at that price. EG-if sandwiches are $1. everyone would want 1 but at $1, am I willing to produce?
2. At P1, price so high, no one wants to buy but I can make a ton of them

Front 15

When quantity demanded is greater than quantity supplied, it is called what?

Q demanded > Q supplied = ?

Back 15

Surplus.

Q demanded > Q supplied = surplus

Front 16

When quantity supplied is greater than quantity demanded it's called what?
Q supplied > Q demanded = surplus

Back 16

Surplus: When Q supplied is greater than Q demanded = surplus.

Q supplied > Q Demanded = surplus

Front 17

When Q demanded > Q supplied, is called what?

Back 17

Shortage.

Q demanded > Q supplied = shortage

Front 18

FC#15: Explain the graph as it pertains to correcting a shortage (price too low):

Back 18

As P increases, business willing to produce more. Which 10 people are willing to pay extra? Consumers start bidding up price. As price goes up, some consumers frop out of market and I am willing to make more at the higher prices.

Front 19

FC#16: Explain graph as it pertains to correcting a surplus (price too high):

Back 19

No one willing to buy - must run a sale so price goes down to lure back customers. Not willing to produce as much at lower price.

Front 20

How do you correct a shortage? (price too low)

Back 20

increase price

Front 21

How do you correct a surplus? (price too high)

Back 21

Lower prices, run a sale to lure back customers.

Front 22

What causes equilibrium?

Back 22

shortage and surplus

Front 23

If prices are too low and a shortage develops then who causes the bidding to go up?

Back 23

Consumers

Front 24

If prices are too high and a surplus develops, who causes the bidding to go down?

Back 24

business owners

Front 25

How do you define market forces coming to rest at market equilibrium?

Back 25

* quantity supplied = quantity demanded.
* Equilibrium stable - price changed/paid & quantity produced/consumed WILL NOT change without a change in economic enviro.
* If just price changes, market forces drive economy back to equilibrium

Front 26

FC#18: Explain the graph as it pertains to clever Ad changes preferenced for a product:

Back 26

After Ad campaign, consumers buy more sandwiches and willing to pay more.
1. shortage created at ad price. consumers start bidding w/price
2. Increase in demand due to change in preference due to advertising

Front 27

FC#19: Explain the graph and what happens to P and Q when one of the five supply environments change?

Back 27

EG: price of oil raises cost of factors of production to just about everything.
1. decrease in supply caused by increase in cost of factors of production
2. price needed to keep production at curent levels
3. shortage develops - firms can't produce Q at "our price"

Front 28

Can both demand and supply change at the same time?

Back 28

yes. EG: over past 4 yrs average price of 6' sandwich has gone from $2.69-4.19 WITH an increase in customer count and overall sales.

Front 29

FC#20: Using the graph, give some examples of environmental changes that has changed supply and demand of Subway?

Back 29

1. Ads: Jared campaign: increase demand point B
2. WA increased min. wage 4X's - increase cost of factors of production: decrease supply, point C
3. Hurricanes - increase cost of FOP - decrease supply, point D
4. national income tax cut - increase income - increase demand, point E

Front 30

What predicts what direction sales will go with a change in price?

Back 30

law of supplay and demand: EG: price goes down, quantity goes up and you sell more

Front 31

What answers the question of how much does quantity change with a change in price?

Back 31

Elasticity

Front 32

Define elasticity

Back 32

how much/what is your response to a change in price: EG: if I raise the price of my sandwiches by $1, I'll loose a lot of customers. BUT, raise price of a gallon of gas by $1, and we moan groan and PAY - similar response to a change in price

Front 33

What is the real definition and equation to elasticity

Back 33

elasticity = % change in quantity / % change in price

Front 34

Define perfectly inelastic

Back 34

any change in price produces ZERO change in sales. You pay anytime for product - "price gouging time"

Front 35

FC#22: Explain the graph as it pertains to degree of elasticity:

Back 35

1. you'll pay anything for Qo.
Most medicines: DM1 must have insulin. No insulin = death - pt has perfectly inelastic demand for insulin

Front 36

Define unitary elasticiy

Back 36

equal change in price and quantity - change over point between inelastic and elastic

Front 37

Define perfectly elastic

Back 37

infinite response to a change in price. You will only pay "Po" for product: I raise the price .01 and you will walk out the door.

Front 38

FC#25: What is this graph and example of?

Back 38

Perfectly elastic

Front 39

What is the total revenue rule of elasticity

Back 39

most of the time, business doesn't have access to the data needed to calculate the elasticity for their product. TRP is a "back-door" method to determine elasticity

Front 40

How do we calculate total revenue?

Back 40

Total revenue = Price X quantity

TR = $ coming into cash register
P = price of product
Q = amount sold

Front 41

increase TR = P increase X Q decrease then?

Back 41

inelastic: price hike swamps loss of sales due to high prices

Front 42

decrease TR = price increase X Q decrease then?

Back 42

elastic: loss of sales due to high prices swamps price hike

Front 43

How do I know if it's inelastic or elastic? What's a great easy way?

Back 43

Inelastic: TR and P move in same direction. (If you go in the same direction, you cannot stretch)
Elastic: TR and price move in opposite directions (If you pull in opposite directions, you will stretch)

Front 44

Picture a chicken, bacon, toasted sandwhich. Would you pay .50? What if it doubled to $1? Probably would still pay for it. Therefore, little response to a change in price means your demand is what?

Back 44

inelastic: demand is inelastic at low prices

Front 45

Suppose the price is the normal $4.29. What would you do if it doubled? Probably walk out, showing a large response to change in price, meaning your demand is what?

Back 45

elastic: demand is elastic at high prices

Front 46

FC#26: Explain what this graph shows

Back 46

1. elastic >1
2. Inelastic <1
3. Unitary =1

Front 47

As price goes up, demand becomes more inelastic or elastic?

Back 47

elastic

Front 48

Define as either elastic, inelastic or unitary:
1. E = 1
2. E > 1
3. E < 1

Back 48

1. Unitary
2. elastic
3. inelastic