E100LectureNotes11

E100LectureNotes11 - 1 Review 2 Question 1 5 Initially the...

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Unformatted text preview: 1/4/2008 1 Review 1/4/2008 2 Question 1 5. Initially, the person below is: A. Saver B. Borrower C. Can’t Tell c 1 B A C c 2 I 1 I 2 1/4/2008 3 Question 2 6. The figure depicts what happens when r.... A. Rises B. Falls C. Can’t Tell c 1 B A C c 2 I 1 I 2 1/4/2008 4 Question 3 The substitution effect causes the individual to borrow.... A. Less B. More C. Can’t Tell c 1 B A C c 2 I 1 I 2 1/4/2008 5 Question 4 The income effect cause the individual to borrow.... A. Less B. More C. Can’t Tell c 1 B A C c 2 I 1 I 2 1/4/2008 6 Market for Factors of Production Market for Finished Goods & Services HOUSEHOLDS FIRMS DEMAND (for Goods & Services) $ $ $ $ SUPPLY (of Factors of Prod) CIRCULAR FLOW DIAGRAM SUPPLY (of Goods & Services) 1/4/2008 7 Overview We learned how households choose quantity of a given commodity they will consume, given prices and income. (Quantity demanded) But goods must be produced (i.e., supplied). We have yet to see how firms choose the quantity of goods they will produce, given prices and costs. (Quantity supplied) To analyze supply, then, we study production, costs, and profit maximization This will characterize trade-offs faced by the firm Later (100B): Equilibrium price will equate quantity supplied with quantity demanded 1/4/2008 8 Theory of Production 1/4/2008...
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E100LectureNotes11 - 1 Review 2 Question 1 5 Initially the...

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