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Economics > 3. Demand, supply and the market > Flashcards

3. Demand, supply and the market Flashcards

1
Q

A market is

A

a set of arrangements by which buyers and sellers exchange goods and services.

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2
Q

Demand is

A

the quantity that buyers wish to purchase at each conceivable price.

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3
Q

Supply is

A

the quantity of a good that sellers wish to sell at each possible price.

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4
Q

The equilibrium price is

A

the price at which the quantity supplied equals the

quantity demanded.

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5
Q

Excess demand exists

A

when the quantity demanded exceeds the quantity supplied at the ruling price.

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6
Q

Excess supply exists

A

when the quantity supplied exceeds the quantity demanded at the ruling price.

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7
Q

The demand curve shows

A

the relationship between price and quantity demanded, other things equal.

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8
Q

The supply curve shows

A

the relationship between price and quantity supplied,

other things equal.

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9
Q

A price increase for one good raises the demand for (1) for this good but reduces the demand for (2) to the good.

A
  1. substitutes

2. complements

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10
Q

For (1), demand increases when incomes rise. For (2), demand falls when incomes rise.

A
  1. a normal good

2. an inferior good

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11
Q

Comparative static analysis changes (1) and examines (2).

A
  1. one of the ‘other things equal’

2. the effect on equilibrium price and quantity

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12
Q

Free markets allow prices to be determined purely by (1).

A
  1. the forces of supply and demand
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13
Q

Price controls are (1) setting (2) that forbid the adjustment of (3) to clear markets. controls

A
  1. government rules or laws
  2. price floors or ceilings
  3. prices
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14
Q

(1) is the quantity that buyers wish to buy at each price. Other things equal, the lower the price, (2). Demand curves slope (3).

A
  1. Demand
  2. the higher the quantity demanded
  3. downwards
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15
Q

(1) is the quantity of a good sellers wish to sell at each price. Other things equal, the higher the price, (2). Supply curves slope (3).

A
  1. Supply
  2. the higher the quantity
  3. upwards
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16
Q

The (1), when the price equates the quantity supplied and the quantity demanded. At this point, supply and demand curves (2). At prices below the equilibrium price there is (3), which itself tends to (3). At prices above the equilibrium price there is (4), which itself tends to (4). In a free market, deviations from the equilibrium price tend to (5).

A
  1. market clears, or is in equilibrium
  2. intersect
  3. excess demand (shortage)/raise the price
  4. excess supply (surplus)/reduce the price
  5. be self-correcting
17
Q

Along a given demand curve, the other things assumed equal are (1), (2) and (3).

A
  1. the prices of related goods
  2. consumer incomes
  3. tastes or habits
18
Q

An increase in the price of a substitute good (or decrease in the price of a complementary good) will (1) at each price.
An increase in consumer income will (2) but (3).

A
  1. raise the quantity demanded
  2. increase demand for the good if the good is a normal good
  3. decrease demand for the good if it is an inferior good
19
Q

Along a given supply curve the other things assumed (1), (2) and (3).
An (4), will increase the quantity supplied at each price.

A
  1. constant are technology
  2. the price of inputs
  3. the degree of government regulation
  4. improvement in technology, or a reduction in input prices
20
Q

Any factor inducing an increase in demand shifts the demand curve to the right, (1). A decrease in demand
(downward shift of the demand curve) (2).
Any factor increasing supply shifts the supply curve to the right, (3). Reductions in supply (leftward shift of the supply curve) (4).

A
  1. increasing equilibrium price and equilibrium quantity
  2. reduces both equilibrium price and equilibrium quantity
  3. increasing equilibrium quantity but reducing equilibrium price
  4. reduce equilibrium quantity but
    increase equilibrium price
21
Q

We can measure the economic surplus created by a market transaction by the sum of the consumer and producer surplus.
The (1) is measured by the area below the market demand and above the equilibrium price. The (2) is measured by the area above the market supply and below the equilibrium price.

A
  1. consumer surplus

2. producer surplus

22
Q

To be effective, a price ceiling must be imposed (1) the free market equilibrium price. It will then reduce the (1) and lead to (1) unless the government itself provides (1).
An effective price floor must be imposed (2) the free market equilibrium price. It will then (2) unless the government adds its (2) to that of (2).

A
  1. below/quantity supplied/excess demand/the extra quantity required
  2. above/reduce the quantity demanded/own demand/the private sector
23
Q 
Markets perform the same economic function.
They determine (1). These prices guide (2).
A
  1. prices that ensure that the quantity buyers wish to buy equals the quantity sellers wish to sell
  2. society in choosing what, how and for whom to produce
24
Q

As the price of a good or service increases, the quantity demanded of that good or service (1) (other things equal) holds for almost every good or service and is known as (2).

A
  1. decreases

2. the law of demand

25
Q

At (1) it is more lucrative to supply chocolate bars and there is a rise in the quantity supplied. This
(2) between the quantity supplied of a given good or service and the price of that good or service (other things equal) is a regularity that holds for
almost every good or service. We call this positive relationship between the price and the quantity supplied of a good or service, (3).

A
  1. higher prices
  2. positive relationship
  3. the law of supply
26
Q

(1) describes the behavior of buyers at every price.

At a particular price there is a particular (2). The term ‘(2)’ makes sense only (3).

A
  1. Demand
  2. quantity demanded
  3. in relation to a particular price
27
Q

The other things relevant to demand curves can usually be grouped under three headings: (1)

A
  1. the price of related goods, the income of consumers (buyers) and consumer tastes or preferences
28
Q 
Tastes are (1)
Also, what consumers expect about (2)
A
  1. shaped by convenience, custom and social attitudes.

2. future prices affects their demand.

29
Q

Four categories of ‘other things equal’ along a supply curve: the technology available to producers, the cost of inputs (labor, machines, fuel, raw materials),
government regulation and expectations.

A
  1. Technological advance enables firms to supply more at each price and shifts the supply curve to the right.
  2. Lower input prices (lower wages, lower fuel costs) induce firms to supply more output at each price, shifting the supply curve to the right. Higher input prices make production less attractive and shift the supply curve to the left.
  3. Government regulations can sometimes be viewed as imposing a technological change that is adverse for producers. If so, the effect of regulations will be to shift
    the supply curve to the left, reducing quantity supplied at each price.
  4. If a firm expects the price of its product to fall in the future it has an incentive to supply more today.
30
Q

The equilibrium price rises but equilibrium quantity falls when (1). Conversely, if (2), a rise in supply induces a higher equilibrium quantity and lower equilibrium price.

A
  1. the supply curve shifts to the left

2. a rise in supply shifts the supply curve

31
Q

Consumer surplus is the difference between the (1) that she is willing to pay for a given amount of a good or service and the price she actually pays.
The consumer surplus is measured by (2).

A
  1. maximum price (also called the reservation price)

2. the area below the market demand curve and above the equilibrium price

32
Q

The producer surplus for sellers is the amount that sellers benefit by selling at (1).
Graphically, the producer surplus is given by (2).

A
  1. a market price that is higher than they would be willing to sell for
  2. the area above the market supply and below the equilibrium price
33
Q

It should be noticed that the economic surplus is (1). At any price that is not the equilibrium price, the economic surplus will (2).

A
  1. highest at the equilibrium price

2. be lower

34
Q

Whereas the aim of a price ceiling (1) is to (1), the aim of a floor price (2) is to (2).

A
  1. maximum price/reduce the price for consumers

2. minimum price/raise the price for suppliers

Economics (9 decks)

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