1. Demand And Supply Intro

Question 0

Goods markets

Answer 0

markets for the output of production. From an economics perspective, firms, which ultimately are owned by individuals either singly or in some corporate form, are organizations that buy the services of those factors. Firms then transform those services into intermediate or final goods and services.

Question 1

Factor markets

Answer 1

markets for the purchase and sale of factors of production. In capitalist private enterprise economies, households own the factors of production (the land, labor, physical capital, and materials used in production).

Question 2

Intermediate goods and services

Answer 2

those purchased for use as inputs to produce other goods and services, whereas final goods and services are in the final form purchased by households.)

Question 3

Labor markets

Answer 3

In one type of factor market, called labor markets, households offer to sell their labor services when the payment they expect to receive exceeds the value of the leisure time they must forgo. In contrast, firms hire workers when they judge that the value of the productivity of workers is greater than the cost of employing them. A major source of household income and a major cost to firms is compensation paid in exchange for labor services.

Question 4

Savings

Answer 4

Income not spent. through which households can accumulate financial capital, the returns on which can produce other sources of household income, such as interest, dividends, and capital gains. Households may choose to lend their accumulated savings (in exchange for interest) or invest it in ownership claims in firms (in hopes of receiving dividends and capital gains). Households make these savings choices when their anticipated future returns are judged to be more valuable today than the present consumption that households must sacrifice when they save.

Question 5

Capital markets

Answer 5

Firms use capital markets (markets for long-term financial capital—that is, markets for long-term claims on firms’ assets and cash flows) to sell debt (in bond markets) or equity (in equity markets) in order to raise funds to invest in productive assets, such as plant and equipment. They make these investment choices when they judge that their investments will increase the value of the firm by more than the cost of acquiring those funds from households. Firms also use such financial intermediaries as banks and insurance companies to raise capital, typically debt funding that ultimately comes from the savings of households, which are usually net accumulators of financial capital.

Question 6

Demand

Answer 6

The willingness and ability of consumers to purchase a given amount of a good or service at a given price.

Question 7

Supply

Answer 7

The willingness of sellers to offer a given quantity of a good or service for a given price.

Question 8

Law of demand

Answer 8

The principle that as the price of a good rises, buyers will choose to buy less of it, and as its price falls, they will buy more.

Question 9

Demand function

Answer 9

A relationship that expresses the quantity demanded of a good or service as a function of own-price and possibly other variables.

Question 10

Inverse demand function

Answer 10

A restatement of the demand function in which price is stated as a function of quantity.

Question 11

Demand curve

Answer 11

Graph of the inverse demand function.

Question 12

Supply function

Answer 12

The quantity supplied as a function of price and possibly other variables.

Question 13

Technology of production

Answer 13

The “rules” that govern the transformation of inputs into finished goods and services.

Question 14

Supply curve

Answer 14

Graph of the inverse supply function

Question 15

Law of supply

Answer 15

The principle that a rise in price usually results in an increase in the quantity supplied.

Question 16

Change in supply

Answer 16

A shift in the supply curve.

Question 17

Change in quantity supplied

Answer 17

Shift along the supply curve

Question 18

Market equilibrium

Answer 18

The condition in which the quantity willingly offered for sale by sellers at a given price is just equal to the quantity willingly demanded by buyers at that same price.

Question 19

Behavioral equations

Answer 19

With respect to demand and supply, equations that model the behavior of buyers and sellers.

Question 20

Exogenous variables

Answer 20

Variables whose equilibrium values are determined outside of the model being considered.

Question 21

Endogenous variables

Answer 21

Variables whose equilibrium values are determined within the model being considered.

Question 22

Equilibrium condition

Answer 22

A condition necessary for the forces within a system to be in balance. Q demanded =Q supplied

Question 23

Partial equilibrium analysis

Answer 23

An equilibrium analysis focused on one market, taking the values of exogenous variables as given.

Question 24

General equilibrium analysis

Answer 24

An analysis that provides for equilibria in multiple markets simultaneously.

Question 25

Excess supply

Answer 25

A condition in which the quantity ready to be supplied is greater than the quantity demanded.

Question 26

Stable

Answer 26

With reference to an equilibrium, one in which price, when disturbed away from the equilibrium, tends to converge back to it.

Question 27

Unstable

Answer 27

With reference to an equilibrium, one in which price, when disturbed away from the equilibrium, tends not to return to it.

Question 28

Common value auction

Answer 28

An auction in which the item being auctioned has the same value to each auction participant, although participants may be uncertain as to what that value is.

Question 29

Private value auction

Answer 29

An auction in which the value of the item being auctioned is unique to each bidder.

Question 30

Ascending price auction

Answer 30

An auction in which an auctioneer calls out prices for a single item and potential buyers bid directly against each other, with each subsequent bid being higher than the previous one.

Question 31

Reservation prices

Answer 31

The highest price a buyer is willing to pay for an item or the lowest price at which a seller is willing to sell it.

Question 32

Sealed bid auction

Answer 32

An auction in which bids are elicited from potential buyers, but there is no ability to observe bids by other buyers until the auction has ended.

Question 33

First price sealed bid auction

Answer 33

An auction in which envelopes containing bids are opened simultaneously and the item is sold to the highest bidder.

Question 34

Winners curse

Answer 34

The tendency for the winner in certain competitive bidding situations to overpay, whether because of overestimation of intrinsic value, emotion, or information asymmetries.

Question 35

Second price sealed bid

Answer 35

An auction (also known as a Vickery auction) in which bids are submitted in sealed envelopes and opened simultaneously. The winning buyer is the one who submitted the highest bid, but the price paid is equal to the second highest bid.

Question 36

Dutch auction

Answer 36

An auction in which the auctioneer begins at a high price, then lowers the called price in increments until there is a willing buyer for the item being auctioned.

Question 37

Single price auction

Answer 37

A Dutch auction variation, also involving a single price, is used in selling US Treasury securities.

Question 38

Consumer surplus

Answer 38

The difference between the value that a consumer places on units purchased and the amount of money that was required to pay for them.

Question 39

Producer surplus

Answer 39

The difference between the total revenue sellers receive from selling a given amount of a good and the total variable cost of producing that amount.

Question 40

Marginal value curve

Answer 40

A curve describing the highest price consumers are willing to pay for each additional unit of a good.

Question 41

Consumer surplus

Answer 41

The difference between the value that a consumer places on units purchased and the amount of money that was required to pay for them.

Question 42

Total expenditure

Answer 42

The total amount spent over a time period.

Question 43

Producer surplus

Answer 43

The difference between the total revenue sellers receive from selling a given amount of a good and the total variable cost of producing that amount.

Question 44

Variable costs

Answer 44

Costs that fluctuate with the level of production and sales.

Question 45

Total surplus

Answer 45

The difference between total value to buyers and the total variable cost to sellers; made up of the sum of consumer surplus and producer surplus.

Question 46

Externality

Answer 46

An effect of a market transaction that is borne by parties other than those who transacted.

Question 47

Negative externality

Answer 47

A negative effect (e.g., pollution) of a market transaction that is borne by parties other than those who transacted; a spillover cost.

Question 48

Positive externality

Answer 48

A positive effect (e.g., improved literacy) of a market transaction that is borne by parties other than those who transacted; a spillover benefit.

Question 49

Deadweight loss

Answer 49

A net loss of total (consumer and producer) surplus.

Question 50

Price floor

Answer 50

A minimum price for a good or service, typically imposed by government action and typically above the equilibrium price.

Question 51

Elasticity

Answer 51

The percentage change in one variable for a percentage change in another variable; a measure of how sensitive one variable is to a change in the value of another variable.

Question 52

Own-price elasticity

Answer 52

The percentage change in quantity demanded for a percentage change in own price, holding all other things constant.

Question 53

Inelastic

Answer 53

Insensitive to price changes.

Question 54

Unit elastic

Answer 54

An elasticity with a magnitude of 1.

Question 55

Elastic

Answer 55

Said of a good or service when the magnitude of elasticity is greater than one.

Question 56

Arc elasticity

Answer 56

An elasticity based on two points, in contrast with (point) elasticity. With reference to price elasticity, the percentage change in quantity demanded divided by the percentage change in price between two points for price.

Question 57

Perfectly Inelastic

Answer 57

Said of a good or service that is completely insensitive to a change in the value of a specified variable (e.g., price).

Question 58

Perfectly elastic

Answer 58

Said of a good or service that is infinitely sensitive to a change in the value of a specified variable (e.g., price).

Question 59

Normal good

Answer 59

A good that is consumed in greater quantities as income increases.

Question 60

Inferior good

Answer 60

A good whose consumption decreases as income increases.

Question 61

Cross price elasticity of demand

Answer 61

The percent change in quantity demanded for a given small change in the price of another good; the responsiveness of the demand for Product A that is associated with the change in price of Product B.

Question 62

Complements

Answer 62

Said of goods which tend to be used together; technically, two goods whose cross-price elasticity of demand is negative.