Costs and Tradeoffs
What is a fixed cost?
A fixed cost is a cost that does not change regardless of production level
What is the law of supply?
The Law of Supply states that at higher prices, sellers will supply more of a given good, as long as all other factors remain the same
What is the law of demand?
The law of demand states that at higher prices, consumers will buy less of a given good, as long as all other factors remain the same
There are two types of inflation: ____-push and ______-pull.
Cost-push and demand-pull
What are some tradeoffs of going out with friends on a Friday night? (name at least 2)
Examples: time that could have been spent with studying, sleeping, watching movies, etc.
The quantity supplied of a product increases. What caused the change?
An increase in prices
What is equilibrium?
The point at which demand is equal to supply
When Donald Trump went to Europe, he distributed a large amount of gold to everyone on the way. What is expected to happen to the value of gold in Europe?
Depreciate because of inflation
What is an example of a variable cost?
Any cost that changes with the level of production. Ex: the cost of eggs will increase as a bakery produces more cakes
The minimum wage of workers increases from $10 to $20. What effect will this have on supply?
Supply decreases because the cost of inputs increases (supply curve shifts to the left)
The price of coffee has increased drastically in the United States. Assuming that tea is a substitute, what do you expect to happen to the demand for tea?
Increase (price increase in a substitute leads to demand increase in a product)
Grayson works at a steel factory, but one day, he is laid off in favor of a machine that works twice as fast as him. What type of unemployment does Grayson fall under?
Structural unemployment (caused by a fundamental shift in his job's outlook - became obsolete)
What tool is used to determine the best course of action amidst tradeoffs?
A cost-benefit analysis
The supply of orange juice has significantly declined after Tropicana went out of business. What determinant of supply has caused this shift?
Number of Sellers (the less sellers there are, the less orange juice is supplied)
Name three of the determinants of demand.
SPICE: Substitutes, Population/Preferences, Income, Complements, Expectations
Consider the demand of tobacco to be inelastic. If excise taxes cause the price of tobacco to increase greatly, will producers be in trouble? Explain why.
Producers will not be in trouble. An increase in prices will cause a decrease of much lower magnitude in the demand for tobacco products. Consumer demand will not change much if prices change.
What is the difference between tradeoffs and opportunity cost?
Tradeoffs are all that is given up to perform a certain action, while the opportunity cost of something is the benefit gained from the next best option
In Econoland, the supply of goods in the country is heavily decreasing because costs are too high and companies cannot hire workers. What phenomenon is occurring?
Stagflation (inflation and unemployment are increasing)
Both the supply and the demand of a product increase over a period of 3 months. What happens to equilibrium price and quantity?
Indeterminate change in equilibrium price, increase in equilibrium quantity
The Fed decreases the discount rate as a part of its expansionary monetary policy. Assuming that the Euro does not change in value, how does the value of the US dollar change in comparison to the Euro?
Decreases: as the Fed conducts expansionary monetary policy, the money supply is increased, therefore causing the value of the dollar to inflate. This will make the dollar's value decrease in comparison to the Euro