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Economics Chapter 25
Terms in this set (28)
What do we call the market where households buy goods & services?
Goods & services market
What do we call the market where businesses buy resources to make goods & services?
Businesses buy labor, machines, raw materials
In a market economy, who owns resources?
People -> households
Natural resources, machines, technology, land, buildings used in production of goods & services
The skill and knowledge that humans have to produce goods and services
Skills and knowledge that help people be more productive
You invest in human capital by going to college
Labor that does not require formal education
Labor that requires a college degree or vocational training
The demand for resources is derived from demand for the final good/service
How will an increase in demand for a product affect demand for a resource used to make the product>
Leads to an increase in demand for resources used to make products
How will a decrease in demand for a product affects demand for a resource used to make a product?
Leads to a decrease in demand for resources used to make a product
How will an increase in productivity of a resource affect demand for the resource?
Leads to an increase in demand for the resource
How will a decrease in productivity of a resource affect demand for the resource?
Leads to a decrease in demand for the resource
Substitutes in production
When a decrease in price of one resource leads to a decrease in demand for the other resource the two resources are substitutes in production
Compliments in production
When a decrease in price of one resource leads to an increase in demand for other resource the two resources are compliments in production
Increase in output resulting from using one more unit of input
Law of diminishing returns
As you use additional amounts of an input, the productivity of that put will eventually decline
Increase in total revenue of company when they sell 1 more item
Marginal revenue product
Increase in total revenue of company from using 1 additional unit of input
Value marginal product
Market value of the marginal product of an additional worker
VMP = MP * Price
If a market is very competitive then MRP = VMP
How many workers should you hire?
Hire until MRP greater than or equal to price of labor (wage)
How many machine should you buy?
Purchase machines until MRP greater than or equal to price of machines
Unskilled labor in equation
skilled labor in equation
Machine in equation
How does short-run affect elasticity of supply?
More relatively in elastic > steeper curve
How does long-run affect elasticity of supply?
More elastic > flatter curve
Takes time for substitute products to come to market
What do prices do?
Coordinate actions of buyers & sellers
Communicate relevant information
High prices > scarcity
Provides an incentive
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