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Microeconomics > 2. Demand and supply analysis > Flashcards

2. Demand and supply analysis Flashcards

1
Q

market demand curve

A

A curve that shows us the quantity of goods that consumers are willing to buy at different prices

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2
Q

derived demand

A

Demand for a good that is derived from the production and sale of other goods

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3
Q

direct demand

A

Demand for a good that comes from the desire of buyers to directly consume the good itself

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4
Q

law of demand

A

The inverse relationship between the price of a good and the quantity demanded, when all other factors that influence demand are held fixed.

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5
Q

market supply curve

A

A curve that shows us the total quantity of goods that

their suppliers are willing to sell at different prices

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6
Q

law of supply

A

The positive relationship between price and quantity supplied, when all other factors that influence supply are held fixed

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7
Q

factors of production

A

Resources such as labor and raw materials that are used to produce a good

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8
Q

equilibrium

A

A point at which there is no tendency for the market price to change as long as exogenous variables remain
unchanged

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9
Q

excess supply

A

A situation in which the quantity supplied at a given price exceeds the quantity demanded

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10
Q

excess demand

A

A situation in which the quantity demanded at a given price exceeds the quantity supplied

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11
Q

The supply curve

A

slopes upward (at higher prices, suppliers of corn are willing to offer more corn for sale than at lower prices)

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12
Q

The demand curve

A

slopes downward (the lower the price of corn, the greater the quantity of corn demanded, and the higher the price of corn, the smaller the quantity demanded)

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13
Q

the four basic laws of supply and demand

A
  1. Increase in demand unchanged supply curve = higher equilibrium price and larger equilibrium quantity.
  2. Decrease in supply unchanged demand curve = higher equilibrium price and smaller equilibrium quantity.
  3. Decrease in demand unchanged supply curve = lower equilibrium price and smaller equilibrium quantity.
  4. Increase in supply unchanged demand curve = lower equilibrium price and larger equilibrium quantity
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14
Q

price elasticity of demand

A

A measure of the rate of percentage change of quantity demanded with respect to price, holding all other
determinants of demand constant

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15
Q

the value of e(Q,P)

A

ALWAYS be NEGATIVE, reflecting the fact that demand curves SLOPE DOWNWARD because of the INVERSE relationship of price and quantity (When price increases, quantity decreases, and vice versa)

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16
Q

Price elasticity of demand equal to 0

A

Perfectly inelastic demand

Quantity demanded is completely insensitive to price

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17
Q

Price elasticity of demand between 0 and -1

A

Inelastic demand

Quantity demanded is relatively insensitive to price

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18
Q

Price elasticity of demand equal to -1

A

Unitary elastic demand

Percentage increase in quantity demanded is equal to
percentage decrease in price

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19
Q

Price elasticity of demand between -1 and -INFINITTY

A

Elastic demand

Quantity demanded is relatively sensitive to price

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20
Q

Price elasticity of demand equal to -INFINITTY

A

Perfectly elastic demand
Any increase in price results in quantity demanded decreasing to zero, and any decrease in price results in quantity demanded increasing to infinity

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21
Q

linear demand curve

A

A demand curve in the form Q = a - bP

22
Q

inverse demand curve

A

An equation for the demand curve that expresses price
as a function of quantity

23
Q

choke price

A

The price at which quantity demanded falls to 0

24
Q

constant elasticity Demand curve

A

A demand curve of the form Q = aP^(-b) where a and b

are positive constants. The term -b is the price elasticity of demand along this curve

25
Q

price elasticity of demand CAN HELP WHAT FOR THE FIRMS

A
  1. deciding how to price their products or services
  2. the structure and nature of competition within particular industries
  3. determining the effect of various kinds of governmental interventions, such as price ceilings, tariffs, and import quotas
26
Q

total revenue

A

Selling price times the quantity of product sold

PQ

27
Q

total revenue will go up

A

the demand is inelastic (the quantity demanded is relatively insensitive to price), the quantity reduction will not be too severe

28
Q

total revenue will fall

A

the demand is elastic (the quantity demanded is relatively sensitive to price), the quantity reduction will outweigh the benefit of the higher price

29
Q

some factors that determine a product’s price elasticity of demand

A
  1. Demand tends to be more price elastic when there are good substitutes for a product
  2. Demand tends to be more price elastic when a consumer’s expenditure on the product is large (either in absolute terms or as a fraction of total expenditures)
  3. Demand tends to be less price elastic when the product is seen by consumers as being a
    necessity
30
Q

The distinction between market-level and brand-level elasticities

A

reflects the impact of substitution possibilities on the degree to which consumers are sensitive to price

31
Q

Should a firm use market-level or brand-level elasticity in assessing the effect of a price change?

A

If a firm expects its rivals to quickly match its price change, then the market-level elasticity will provide the appropriate measure of how the demand for the firm’s product is likely to change with price.
If, by contrast, a firm expects its rivals not to match its price change (or to do so only after a long time lag),
then the brand-level elasticity is appropriate.

32
Q

income elasticity of demand

A

The ratio of the percentage change of quantity demanded to the percentage change of income, holding price and all other determinants of demand constant

33
Q

two different types of income elasticity of demand

A

Estimated Income Elasticity: Nonpoverty Status Households

Estimated Income Elasticity: Poverty Status Households

34
Q

both types of households, the estimated income

elasticities of demand are

A
  1. positive, (the quantity demanded of the good increases as income increases)
  2. negative (advanced countries in Asia, such as Japan and Taiwan, the income elasticity of demand for rice is negative)
35
Q

cross-price elasticity of demand

A

The ratio of the percentage change of the quantity of one good demanded with respect to the percentage change in
the price of another good

36
Q

Cross-price elasticity can be

A

positive or negative

37
Q

Cross-price elasticity is positive

A

a higher price for good j increases the quantity of good i demanded. In this case, goods i and j are demand substitutes

38
Q

demand substitutes

A

Two goods related in such a way that if the price of one increases, demand for the other increases

39
Q

Cross-price elasticity is negative

A

a higher price for good j decreases the quantity of good i demanded

40
Q

demand complements

A

Two goods related in such a way that if the price of one increases, demand for the other decreases

41
Q

price elasticity of supply

A

The percentage change in quantity supplied for each percent change in price, holding all other determinants of supply constant

42
Q

firm-level price elasticity of supply

A

the sensitivity of an individual firm’s supply to price

43
Q

the market-level price elasticity of supply

A

the sensitivity of market supply to price

44
Q

long-run demand curve

A

The demand curve that pertains to the period of time in which consumers can fully adjust their purchase decisions to changes in price.

45
Q

short-run demand curve

A

The demand curve that pertains to the period of time in which consumers cannot fully adjust their purchase decisions to changes in price

46
Q

The long-run demand curve is (*) than the short-run demand curve

A

“flatter”

47
Q

long-run supply curve

A

The supply curve that pertains to the period of time in which producers can fully adjust their supply decisions
to changes in price

48
Q

short-run supply curve

A

The supply curve that pertains to the period of time in which sellers cannot fully adjust their supply decisions in response to changes in price

49
Q

durable goods

A

Goods, such as automobiles or airplanes, that provide

valuable services over many years

50
Q

the long-run supply curve is (*) than the short-run supply curve

A

flatter

51
Q

long-run market demand can be (1) than short-run demand, (2) what certain goods?

A
  1. less elastic

2. durable goods––that provide valuable services over many years

52
Q

demand for new commercial aircraft in the long run might be relatively price (1), in the short run (within 2 or 3 years of the price change), demand would be
relatively (2)

A
  1. inelastic

2. more elastic

Microeconomics (4 decks)

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