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88 Cards in this Set

  • Front
  • Back
as the quantity produced increases
each additional unit costs more and more to produce
marginal cost increases
marginalism
the additional cost of each additional unit
the supply curve says that the profit maximizing quantity rises
as the price rises.
the supply curve says it is only profitable to produce more
only at high prices.
the supply curve says that the price must rise
for it to be profitable to produce more
supply curve: the price must be higher to
cover the increased costs. to make production more profitable
The law of diminishing returns
as additional units of labor are added to fixed plant and equipment, each additional worker adds less and less to total output.
adds to the short run, not the long run.
if the law of diminishing returns was not true
then all of the worlds output of cars could be produced in a single plant. All of worlds wheat could be grown on a single acre
Marginal physical product
the addition to total output added by an additional worker
as additional units of labor are added to fixed plant and euquipment
marginal physical product declines
As each additional worker adds less and less,
each additional unit costs more and more
changes in cost
change supply; not when the price changes
market supply
the total quantity supplied byall firms at every price
quantity supplied
a specific quantity at a specific price. when price changes, quantity supplied changes
supply
the quantity supplied at every price. the entire supply curve
the supply curve slopes upward because
the quantity produced at every price is the profit maximizing quantity. profit maximizing quantity rises as the price rises.
no buyer wants or benefits
from a low price at which he cannot buy
each buyres interest is the lowest price
at which he can buy what he wants.
No seller wants or benefits from
a price in which he can not sell
Every sellers interest is in the highest price
at which he can sell all he wants
both buys and sellers benefit from
price equilibrium
when anything other than price changes,
supply changes
when there is an increase in supply
quantity supplied at every price increases and vice versa
law of supply: cost reductions
increase supply. at each quantity cost per unit is less, and price required to maximize profits is less
when costs fall
the firm maximizes profits at a lower price for an specific quanityt
why costs fall:
price of factors falls
technological advance
costs increases
reduce supply
cost increase reduce supply: at each quantity
cost per unit is higher. Price required to make production profitable is higher
cost increases reduce supply: why costs rise
price of factors rise
not because of technological regression
The law of supply and demand
at the market the price of any good or service, Quantity demanded equals quantity supplied. the market price will be the equilibrium price.
Price above equilibrium in law of supply and demand
quantity sellers want to sell exceeds quantity buyers want to buy.
Buyers can buy all they want.
sellers cant sell all they want
surplus
surplus
quantity supplied exceeds quantity demanded
price above equilibrium: inventories accumulating
sellers incurring unnecessary costs: storage costs
Price above equilibrium: sellers cut price
get back balance
price bid down in competition
cellers can increase sales by cutting price.
quantity demanded increase
quantity supplied decreases
price below equilibrium
quantity buyers want to buy exceeds quantity sellers want to sell
price below equilibrium:
sellers can sell all they want to sell
buyers cannot buy all they want to buy
shortage
quantity demanded exceeds quantity supplied
in position of a shortage, sellers can
raise their prices and sell more at the same time.
incresae profits
eliminate shortage
price rises
quantity demanded decreases
quantity supplied increases
equilibrium price:
stability:a balance of forces
if not there, forces push in that direction
if there, no forces causing further change
equilibrium price: quantity supplied = quantity demanded
buyers can buy all they want at that price
sellers can sell all they want at that price
no frustrated or dissapointed buyers or sellers
everyone is satisfied
at equilibrium
no one has any incentive to change
conflicting interests of buyers and sellers
sellers want to sell at the highest price possible, and buyers want to buy at the lowest price possible.
conflicting interests of buyers and sellers resolved.
no buyer wants a low price that they cannot buy. No sellers has interest in high price that they cannot sell
interests of buyers and sellers are the same:
both benefit from price. no necessarily true at equilibrium price.
when do buyers think a price is too high?
when it has gone up
when do sellers think a price is to low?
when they are making losses or below normal return
normal profit is
avg rate of return for profit of a business
increase in demand
short run.
chicken farming
inventories fall and sellers raise price and sell more
price and quantity exchanged increase
decrease in demand
cattle ranching
inventories accumulate and producers compete down price
price falls, quantity decreases, and losses appear
increase in supply
costs fall and sellesr want to sell more
cut price and increase quantity
quantity increases, demand decreases
decrease in supply
long run
costs rise and sellers want to sell less
raise price and reduce quantity.
the capacity to produce decreases
price increases and quantity decreases
demand increases and supply decreases
price increases and the quantity cannot be determined
the inflation case
inflation case
rising income gives a higher demand. costs rise and labor rises.
std of living falls and people become discouraged
Milton Friedman
"inflation is always and everywhere a monetary phenomenon"
milton friendman's quote means
to fast of growth in money supply. To much money choosing to few goods
if the market price= the market ceiling
nothing happens
the market price cannot be
above the price ceiling. reduces price
the drawback to price ceiling is
shortages
price control results in
lower prices= shortages
price cant legally go below
the price floor
in new york, rent control
exceeds equilibrium price
supply decreases, rising costs
reduce a supply, and makes rising wages for labor
shortages lead to rationing by store owners (3)
first come first served
limit quantity per customer
save for best customers
shortages:Govt. rationing by rationing tickest
to buy, need money + ticket
need money + permission by the government. not in a free country
problems with govt. rationing
1. how many tickest issued for each product? has to be guesses
2.who gets the tickets?
who needs gas the most: police, doctors, cripples
in a rationing ticket shortage
a larger suppler of tickets than supply is better: shortage
need versus production
more production means more income, more goods
more needs means more tickets, means more goods.
Production can be measured and need cannot= corruption
people with friend in the government
influence peddling
political pull
corruption
number of burueacrats used to administer and enforce rationing tickets durring WW2
300,000
black markets
price above legal price ceiling
pay the illegal, free market price.
much higher price than in abscence of controls
black markets: severely limit quantities available
1. total quantity produced shrinks, reduces supply
2. some sold at controlled price
3. risks of sellers, breaking the law
incentives for black market
victims wants to be victimized
police state: absolute tyranny
"murder in the streets of saigon"
Usuall price controls are established by
freezing prices
it is important to suprise people when you are goin to freeze prices because
otherwise they would raise thier prices in advance
two things the government cannot freeze
taste
deposits of raw materials
one thing the government will not freeze
gov. spending
demand keep son inscreasing
price controls take the pressure of what off the gov.?
inflation
inflation is caused by
the gov. printing money and then spending it.
caused by their expansion of money
total demand increases: more workers hired at frozen wages
causes the total wage bill to rise.
when tastes change during a price freeze
shortages appear for goods for which demand increases
during a price freeze, supply goes on decreasing
deposits of raw materials used up
takes time to raise prices
during a price freeze, some businesses are caught with prices below costs
they go out of business because of this
controls cause a waste of supplies
output is sold to soon
prices of goods the gov. dares not to freeze
commodity goods like oil wheat, corn, soy beans, coal cotton
commodity goods
basic materials of which everything is made
what do speculators do
they allocate supplies over time
without speculation
the selling price would be below the price.
with price controls
price cannot rise to cover storage costs.
speculators sell their stock then