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PERFECT COMPETITION, LOSS MINIMIZATION: A perfectly competitive firm is presumed to produce the quantity of output that minimizes economic losses, if price is greater than average variable cost but less than average total cost. This is one of three short-run production alternatives facing a firm. The other two are profit maximization (if price exceeds average total cost) and shutdown (if price is less than average variable cost).
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Lesson 5: Market Demand | Unit 2: Law of Demand
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Page: 6 of 20
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An important question is: Why does the law of demand work? Two reasons are income effect and substitution effect. First, the income effect. This is the change in quantity demanded that results because a change in price gives a buyer more real income, even though money income remains unchanged. - The reason is that buyers have limited income.
- Any change in price affects the purchasing power of buyers' limited income. A higher price means a given income can buy less and a lower price means a given income can buy more.
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RATIONAL BEHAVIOR The notion that people make decisions based on the desire to obtain the greatest amount of satisfaction. Rational behavior essentially means that people prefer more to less. The presumption of rational behavior underlies most economic analysis, especially that applied to consumer demand theory.
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BLACK DISMALAPOD
[What's This?]
Today, you are likely to spend a great deal of time watching infomercials seeking to buy either an electric coffee pot with automatic shutoff or a brown leather attache case. Be on the lookout for crowded shopping malls.
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North Carolina supplied all the domestic gold coined for currency by the U.S. Mint in Philadelphia until 1828.
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"The time to repair the roof is when the sun is shining." -- John F. Kennedy, 35th U. S. president
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AMEX
American Stock Exchange
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