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48 Cards in this Set

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Define supply
Your willingness to be paid to produce given the economic environment - think like an owner NOT like a consumer!
FC#10: Explain the graph as it applies to the law of supply:
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.
FC#11: Explain the graph as it pertains to the law of supply:
Price change only!
* Called change in QUANTITY supplied
* Economy moves along SAME SUPPLY CURVE.
If the price changes, what does that do to your willingness to produce?
It also changes
If Price increases, what does that do to your willingness to produce? What is that called?
if price increases, your willingness to produce increases - called INCREASE IN QUANTITY SUPPLIED
If price decreases, what does that do to your willingness to produce? What is that called?
if price decreases, your willingness to produce decreases - called DECREASE IN QUANTITY SUPPLIED
*CRITICAL* A change in price is a change in?
quantity supplied!
FC#12: Explain the graph as it pertains to changes in supply environment:
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
*WARNING* A decrease in supply looks like supply went up on a graph - we need to be thinking in terms of what?
increase or decrease - NOT up and down!
A change in Economic environment is called
Change in supply. Note that the term quantity is missing!
What 5 things affect supply environments
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
If the price of veggies goes up because hurricanes and floods wipe out tomatoes in FL & CA; what is that called?
change in cost of factors of production
FC#13: Explain the graph as it pertains to supply of environment:
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
FC#14: Explain the graph as it's meant when supply meets demand:
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
When quantity demanded is greater than quantity supplied, it is called what?

Q demanded > Q supplied = ?
Surplus.

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

Q supplied > Q Demanded = surplus
When Q demanded > Q supplied, is called what?
Shortage.

Q demanded > Q supplied = shortage
FC#15: Explain the graph as it pertains to correcting a shortage (price too low):
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.
FC#16: Explain graph as it pertains to correcting a surplus (price too high):
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.
How do you correct a shortage? (price too low)
increase price
How do you correct a surplus? (price too high)
Lower prices, run a sale to lure back customers.
What causes equilibrium?
shortage and surplus
If prices are too low and a shortage develops then who causes the bidding to go up?
Consumers
If prices are too high and a surplus develops, who causes the bidding to go down?
business owners
How do you define market forces coming to rest at market equilibrium?
* 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
FC#18: Explain the graph as it pertains to clever Ad changes preferenced for a product:
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
FC#19: Explain the graph and what happens to P and Q when one of the five supply environments change?
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"
Can both demand and supply change at the same time?
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.
FC#20: Using the graph, give some examples of environmental changes that has changed supply and demand of Subway?
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
What predicts what direction sales will go with a change in price?
law of supplay and demand: EG: price goes down, quantity goes up and you sell more
What answers the question of how much does quantity change with a change in price?
Elasticity
Define elasticity
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
What is the real definition and equation to elasticity
elasticity = % change in quantity / % change in price
Define perfectly inelastic
any change in price produces ZERO change in sales. You pay anytime for product - "price gouging time"
FC#22: Explain the graph as it pertains to degree of elasticity:
1. you'll pay anything for Qo.
Most medicines: DM1 must have insulin. No insulin = death - pt has perfectly inelastic demand for insulin
Define unitary elasticiy
equal change in price and quantity - change over point between inelastic and elastic
Define perfectly elastic
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.
FC#25: What is this graph and example of?
Perfectly elastic
What is the total revenue rule of elasticity
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
How do we calculate total revenue?
Total revenue = Price X quantity

TR = $ coming into cash register
P = price of product
Q = amount sold
increase TR = P increase X Q decrease then?
inelastic: price hike swamps loss of sales due to high prices
decrease TR = price increase X Q decrease then?
elastic: loss of sales due to high prices swamps price hike
How do I know if it's inelastic or elastic? What's a great easy way?
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)
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?
inelastic: demand is inelastic at low prices
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?
elastic: demand is elastic at high prices
FC#26: Explain what this graph shows
1. elastic >1
2. Inelastic <1
3. Unitary =1
As price goes up, demand becomes more inelastic or elastic?
elastic
Define as either elastic, inelastic or unitary:
1. E = 1
2. E > 1
3. E < 1
1. Unitary
2. elastic
3. inelastic