Explain the Law of Demand and Elasticity Flashcards

When a good's price is low, consumers will buy more of it. if price is high, consumers will not buy more of it

1. Increase Income2. Tastes/Seasons/Advertising3. # of Consumers4. Related Goods (compliments & substitutes)5. Expectations

The way customers respond to changes in price. dictates how drastically buyers will cut back or increase demand for good when price rises or falls

Demand for a good that you will keep buying despite a price increase or relatively unresponsive to price changes
(e.g. toilet paper)

Buy much less for a good after small price increase. consumer very responsive to price changes
(e.g. Boston Globe)

Luxury vs. necessity% of income - more cheap, less attentionsubstitutestime (demand for goods vs. services are elastic over time)

Varies with price. if price increases, quantity increases

1. input costs (factor costs) (factors to produce product)2. technology (can lower production costs) 3, profitability of alternative profits4. # of other suppliers (if more suppliers enter market to produce certain good, market supply of good will rise) 5. expectations (see soybeans)

A cost that does not change, no matter how much of good is produced. most involve production facility (cost of building)

Rise or fall depending on quantity produced. costs of raw materials & some labour.

Additional cost of producing one more unit

Best level of output is to find where marginal revenue is equal to marginal cost

Three tasks involve in making a beanbag

4-7th worker hired, benefits of specialization end. produce less & less output from each additional unit of labor added to mix

Perfectly competitive market w/ large # of firms producing essentially the same product. each firm produces so little of product compared to total supply that one firm cannot hope to influence prices