AG Economics Chad Henry 2021 2nd test study review

ELASTICITIES
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Terms in this set (34)
ELASTICITIES
estimates the degree of consumer responsiveness to changes in price and income
Own prices of elasticities and demand
measure of relative response of consumption of a good or service to change in price;
ELASTIC DEMAND
a price increase causes large reduction in demand and revenues decreases
INELASTIC DEMAND
could increase price and increase revenue; more profit with higher price and less product to produce
INCOME ELASTICITY OF DEMAND
Income elasticity for food on average will decrease as income increases, spend more on luxury items
PERFECT COMPETITION
market structure characterized by large number of producers selling a homogeneous product, each with perfect information, and no barriers to entry or exit
3 characteristics of perfect competition
-any business can enter or leave sector without encountering serious barriers for entry(patents, licensing)
-there must be a large number of sellers of product, no single seller has influence on price, PRICE TAKER
--perfect information must exist for all participants regarding prices, quantities, qualities, sources of supply, and so on
What input is most important
the change in the level of output associated with a change in the use of particular input, where all other inputs used in production process remain fixed at existing levels
What type of manager are you?
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Law of DiminishingMarginal Returns
As successive units of a variable
input are added to a production
process with the other inputs held
constant, the marginal physical
product (MPP) eventually declines"
Stage of production does a producer want to produce atAs successive units of a variable input are added to a production process with the other inputs held constant, the marginal physical product (MPP) eventually declines"fix cost vs variable costFIXED COST—cost do not vary with production Example: taxes, notes payable, tractor note VARIABLE COST—cost that vary with production Example: labor, electricity, feed, fertilizermarginal costMARGINAL COST--is change in business's total costs per unit of change in outputMarginal revanuMaximize profit underWhat do all business have incommon3 purposes of record keepingMeasure PROFIT and assess financial condition. Provide data for business analysis. Assist in obtaining loans.Know accounting termsPRODUCTION ACTIVITIES—activities related to the production of crops and livestock; revenue and expenses INVESTMENT ACTIVITIES—activities related to purchase, depreciation, and sale of long-lived assets FINANCING ACTIVITIES—all transactions related to borrowing money and paying interest and principal on debtDepreciationDEPRECIATION—refers to the reduction in value of assets due to their consumption or wear-out during business operations over timeDifferent calendar year - Fiscal yearCALENDAR-YEAR—all transactions occurring between Jan. 1 - Dec. 31 FISCAL-YEAR—uses 12 month period that may begin on any dateDifferent in cash accounting and Accrual accounting.Accounting method, with only few exceptions, no transaction is recorded unless cash is spent or received. Accrual accounting records as revenue the value of all products produced and all services provided during a year3 financial statements,INCOME STATEMENT—financial statement that reports the revenue and expenses incurred by the firm during an accounting period Get a Net Profit or Loss. BALANCE SHEET—financial statement reporting the value of a business at a point in time; list of ASSETS and LIABILITIES that concludes with an estimate of NET WORTH or OWNER EQUITY by taking the difference between value of assets and liabilities. CASH FLOW STATEMENT—financial statement that reports the sources and uses of cash by the firm during an accounting periodEXPLICIT COST & IMPLICIT COSTEXPLICIT COST—expense where a cash payment to others is required Example: cost of fuel, fertilizer, seed IMPLICIT COST—expense that doesn't involve the direct payment of money Example: depreciation, opportunity costGross ratioGROSS RATIO—used to assess economic efficiency of a business, ratio of total expenses to total revenue (expenses/revenue) Example: if business expenses are $75,000 & revenue is $125,000? What is Gross Ratio?Rate of Return on equityratio used measure of profitability for the return on the owner's share of capital invested (net income/equity appearing on balance sheet)On balance sheeta financial report summarizing the assets, liabilities, and equity of a business at a point in timeLiquidityLIQUIDITY—ability of a business to convert its assets to cash quickly, without loss in value of business; current assets greater than liabilities a business is said to be liquid Example: farm assets are $100,000 & liabilities are $75,000; the Current Ratio is?SolvencySolvency indicates the ability of a business to repay its total liabilities if business were to dissolveproduct competitionPRODUCT COMPETITION—rivalry between alternative or substitute products -Beef and porkFirm competitionFIRM COMPETITION—rivalry between sellers of similar products -McDonalds and Burger KingFunctional competitionFUNCTIONAL COMPEITION—rivalry between firms to determine who will perform a particular marketing function -Farmer's Market & Grocery Storemonoplistic competitionIdentical to those of perfect competition with 1 difference—products sold are no longer homogeneousOligopolyOLIGOPOLY—conditions same as those of monopolistic competition with 1 major exception: THERE ARE ONLY A FEW SELLERS, each of which is large enough to have an influence on market volume and priceMonopolyMONOPOLY—complete opposite of perfect competition, only 1 seller in market