2023 Final Cumulative Flashcards
Product Markets are?
where finished goods and services are bought and sold?
Factor Markets are?
where factors of production(land, labor, capital) are bought and sold?
(If you go to work for example, your employee is purchasing your services.)
The Law of Demand states…
claims there is an inverse relationship between price and quantity demanded ḈṖ
If Price ↑, then Qo(quantity demanded) ↓
If Price ↓, then Qo ↑
The Law of Supply states…
states there is a direct relationship between price and quantity supplied(cetpar)Market Supply are…
If P ↑, then Qs ↑
If P ↓, then Qs ↓
What is Equilibrium Price?
P*-When quantity demanded = Quantity supplied
What is Ceteris Paribus?
assumption of “other things remaining equal” is called?
What is Market Surplus?
at a given price, the amount by which Qs exceeds Qd
-occurs when the price is too high to clear the market
What is a Market Shortage?
at a given price, the amount by which Qd exceeds Qs
-occurs if price is too low to clear the market
Substitute goods
goods that can be replace for another
Example: The price of beef going up will increase the demand for chicken
Complementary Good
other goods prices lowering can have effect on demand of another good
Example: the price of peanut butter lowering will increase the demand for jelly
Market Mechanism
aka the invisible hand, adjusts based on sales & prices=Price signal
Under what condition does DEMAND for a product exist?
a demand exists only if someone is willing and able to pay for the good
What are the five determinants of Market Demand?
- Tastes and preferences
- Income
- Other Goods (Substitute goods and Complimentary goods)
- Expectations of Future (prices/tastes/incom)
- Number of buyers
What are the six determinants of Market Supply?
- Technology
- Factor costs
- Other goods{profitability of Prod.)-if producing other goods provide you more money, there is little incentive
- Government Intervention-a. subsidies b. taxes
- Expectations-of future prices
- Number of sellers - too much competition
Within a competitive product market, how is the equilibrium price of a product determined?
by trial and error and a “compromise” between buyers and sellers
When a shortage is present, how will the behavior of market participants change to eliminate the shortage?
Price gets “bid up” as buyers compete for good until it reaches the equilibrium
When a surplus is present, how will the behavior of market participants change to eliminate the surplus?
Price gets “bid down” as producers compete for sales and customers until it reaches the equilibrium
What causes a change in the equilibrium price of a product?
the equilibrium price will change whenever the supply or demand curve shifts which happens if a determinant of demand changes
What does Price Elasticity of Demand tell us?
Tells us the size of the consumer response to a price change.
What is Total Revenue?
The price of a product multiplied by the quantity sold in a given time period.
Formula: price × quantity sol.
What does it mean for a product to have “Elastic Demand”?
there is a large quantity response when the price changes. Meaning consumers buy A LOT MORE when the price falls, and A LOT LESS when the price rices.
If a product has “Elastic Demand”, what will the product’s demand curve look like?
Demand curve looks “flat”, looks like easy to climb.
What does it mean for a product to have “Inelastic Demand”?
there is a small quantity response to a price change. Meaning consumers only buy a little less when the price rises and a little more when it falls.
If a product has “Inelastic Demand”, what will the product’s demand curve look like?
Demand curve looks very “steep” and hard to climb.