SENIOR ECONOMICS UNIT 2 Chapters 4 & 5 MICROECONOMICS: SUPPLY & DEMAND

THE BASICS --SOME TOTALS TO CONSIDER: total product -- total output or production by a firm Total Revenue -- total receipts; price of goods sold, times quantity sold total cost -- variable plus fixed cost all costs associated with production --SOME VARIABLES TO CONSIDER: Law of variable Proportions -- rule stating that short run output will change while as one output is varied while others held constant variable cost -- Production cost that varies as output changes; labor energy raw materials Microeconomics -- deals with the behaviors and decision making of small units, such as individuals and businesses Marginal Utility -- the extra usefulness of satisfaction a person gets from acquiring or using one more unit of a product marginal cost -- extra cost of producing one additional unit of production quantity -- supplied amount offered for sale at given price Fixed cost -- The cost that a business incurs even if the plant is idle and output is zero.

ELASTIC STUFF … Elasticity -- the measure of responsiveness that tells how a dependent variable (such as quantity) responds to the change in an independent variable (such as price) Inelastic -- a given change in price causes a relatively small change in demand Supply elasticity -- responsiveness of quantity supplied to a change in price Demand Elasticity -- the extent to which a change in price causes a change in quantity demanded Unit Elastic -- a given change in price causes a proportional change in the quantity demanded

A FEW FACTORS RELATING TO DEMAND … Demand Schedule -- a listing that shows the various quantities demanded of a particular product at all prices Demand Curve -- A graph that shows the quantity demanded at each and every price that might prevail in the market Law of Demand -- states that the quantity demanded of a good or service varies inversely with its price Substitution effect -- change in quantity demanded because of the change in relative price of the product --A COUPLE OF “RUNS” TO CONSIDER: long run -- Production period long enough to change the amount of variable and fixed inputs used in production. Short run -- Production period so short that only variable inputs can be changed.

Demand Word Thermometer To Measure Customer Response LOL:

FACTORS OF SUPPLY … --SOME EFFECTS TO CONSIDER: Income effect -- change in quantity demanded because of a change in price that alters a consumer's real income Substitution effect -- change in quantity demanded because of the change in relative price of the product change in supply -- different amounts offered for sale at each and every possible price in the market shift of supply curve Law of supply -- rule stating that more will be offered for sale at high prices than lower prices. Supply curve -- A graph showing the various quantities supplied at each and every price that might prevail in the market. * Supply -- Amount of product that would be offered for sale at all possible price and a different quantity at another price. Market supply curve -- supply curve that shows the quantity offered at various prices by all firms that sell the product in a given market.

MISCELLANEOUS (RANDOM) MICROECONOMICS TERMS: Complements -- Related goods that increase the use of other goods Income effect change in quantity demanded because of a change in price that alters a consumer's real income Raw materials -- unprocessed natural resources used in production break even point -- production needed if the firm is to recover its cost. production level where total loss equals total revenue subsidy -- government payment to encourage or protect a certain economic activity. over head -- broad category of fixed costs that include interest, rent, taxes, and executive salaries