ECONOMICS 1 Basic Economics with Agrarian Reform MIDTERM REVIEW QUESTIONS DEMAND, SUPPLY AND EQUILIBRIUM ‘A, Demand What side of the market is represented by demand? * How is demand determined? * What is a demand schedule? * What is a demand curve? * How is the demand equation determined? How is the demand curve graphed? * Why does the demand curve slope downward? * What factors affect the demand for a certain good/service? * How do you distinguish between a shift of the curve and a movement along the curve? B. Supply * What side of the market is represented by supply? + How is supply determined? * What is a supply schedule? * What is a supply curve? * How is the supply equation determined? How is the supply curve graphed? * Why is the supply curve upward-stoping? * What factors affect the supply for a certain good! service? * How do you distinguish a shift of the curve from a movement along the curve? C. Equilibrium * How is the equilibrium point computed? * How do we know if a market is in equilibrium, at a shortage or at asurplus? * Where can you find the equilibrium, the shortage/surplus at certain prices on the graph? + How do you find changes in the equilibrium price and equilibrium quantity, given certain situations? D. Elasticities, * How do you compute for the elasticity of demand supply? * How do you interpret the computed elasticities? ll, THEORY OF THE FIRM AL Market Structures * What are the different market structures? * How does each one differ from the rest? The Production Function * What is a production function? * What are total product, marginal product and average product? How do you compute for them? * What are returns to scale? How are they classified? . Production Costs Differentiate fixed costs, variable costs and average costs, marginal costs * How do you solve for the ff: ~ TFC, AFC - TC, AVC. - MC Time Periods in Production * Differentiate the short run from the long run . Profit Maximization * How is revenue computed? * How do you compute for the breakeven point (breakeven qty, breakeven amount}? * Profit maximizing condition: THE FIRM SHOULD STOP PRODUCING WHEN MC=MR.TIME PERIODS IN PRODUCTION 1. Short Run = The period in which firms can adjust production by changing variable factors 2. Long Run’ = The period in which all factors {fixed and variable) can be adjusted ‘THE PRODUCTION FUNCTION ~ Specifies the maximum amount of output that can be produced with a given quantity of inputs, and is defined for a given state of engineering and technical knowledge = Assumes that firms produce efficiently = Knowing a firm's production function, we can be able to calculate these production concepts: 1. Total Product (TP ~ Total amount of output produced 2, Marginal Product [MP] = Additional output produced by an additional unit of input, holding other inputs constant 3. Average Product (AP] ~ Total output/ total input “The changes in the total product curve correspond to the marginal product of labor for every additional unit. LAW OF DIMINISHING MARGINAL RETURNS = Asa firm adds additional units of an input it gets less and less additional output ~ Entails that the MP of each unit of input will decline as the amount of that input is increased, other factors held constant (diminishing = May not hold for al levels of production (rises at first, but eventually falls) RETURNS TO SCALE ~ Show the effects of scale increases of allinputs on output 1. Constant returns to scale = Change in inputs leads to a proportional change in output = haircuts 2. Increasing returns to scale = Change in inputs leads toa more than proportional change in output = manufacturing 3. Decreasing retums to scale = Change in inputs leads to a less than proportional change in output ~ Activities involving natural resources