Unit 1 - Supply and Demand (1-19-16 to 1-20-16)

TABLES

Fixed Cost: a cost that does not change no matter how much is produced

• Rent, Mortgage, Insurance, Salary

Variable Cost: cost that rises or falls depending upon how much is produced

• Electricity

Marginal Cost: cost of producing one more unit of a good

• New total rev - Old total rev

FORMULAS

TC = TFC + TVC
ATC = AFC + AVC
AFC = TFC / Q
AVC = TVC / Q
ATC = TC / Q
TFC = AFC * Q
TVC = AVC * Q

(EXAMPLE of a table BELOW)

Equilibrium is the point at where the supply curve and the demand curve meet. This is where all resources are being efficiently used.

Excess Demand: when the quantity demanded is greater than the quantity supplied. This will result in SHORTAGES, where consumers cannot get the quantities of items that they desire.

Price ceiling creates a shortage.  A price ceiling occurs when the government puts a legal limit on how high the price of a product can be.  In order for a price ceiling to be effective, it must be set below equilibrium. 

Excess Supply: when the quantity supplied is greater than he quantity demanded.  This will result in a SURPLUS, where producers have inventories they cannot get rid of.

Price floor is the lowest legal price a commodity can be sold at. A price floor creates a surplus.  Price floors are used by the government to prevent prices from being too low. The most common price floor is the minimum wage.