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Econ 101 > Chapter 3 > Flashcards

Chapter 3 Flashcards

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1
Q

What four things make a perfectly competitive market

A

Many buyers and sellers
Identical goods
Free entry and exit
Price takers

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2
Q

Market demand

A

The demand by all consumers of a given good or service

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3
Q

Quantity demanded

A

The amount of a good or service that consumers are willing and able to purchase at a given price

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4
Q

Law of demand

A

There is an inversely proportional relationship between the price of a good or service and the quantity demanded.

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5
Q

Substitution effect

A

The change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power

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6
Q

Income effect

A

The change in quantity demanded of a good that results from the effect of a change in the good’s price on a consumers’ purchasing power, holding all other factors constant.

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7
Q

Determinants of demand

A 
Income
Price of related good
Tastes
Population/demographics
Natural disasters/pandemics
Consumer expectation
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8
Q

Demand: Income

A

Normal goods: when income increases, demand for that good increases. I.e. Clothes

Inferior goods: When income increases, demand for that good decreases: I.e. No-name products

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9
Q

Demand: Price of related goods

A

Substitutes: Goods and services that can be used in place of another good to satisfy similar needs or desires. An increase in the price of a substitute decreases the quantity demanded of the substitute and increases the demand for that product.

Complements: Goods and services that are used together. A decrease in the price of a complement increases the quantity demanded of the complement and the demand for that product

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10
Q

Demand: Tastes

A

If consumer tastes change, they may buy more or less of the product

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11
Q

Demand: Demographics

A

Demographics: The characteristics of a population with respect to age, race and gender. Increases in the number of people buying something will increase the amount demanded.

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12
Q

Demand: Disasters and Pandemics

A

Occurrence of a natural disaster or pandemic: Consumers buy less of of most goods but more of few goods.

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13
Q

Demand: Consumer expectations

A

Consumers decide which products to buy and also when to buy them (Future products are substitutes for current products)
an expected increase in the price tomorrow increases demand today
An expected decrease in the price tomorrow decreases demand today

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14
Q

Market supply

A

The sum of all individual supplies of a good or service

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15
Q

Quantity supplied

A

The amount of a good or service that firms are willing and able to supply at a given price

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16
Q

Law of supply

A

The price of a product and quantity supplied have a directly proportional relationship

17
Q

Determinants of supply

A 
Price of inputs
Technological change
Price of related goods in production
Number of firms in the market
Producer expectations
Natural disasters and pandemics
18
Q

Supply: Prices of Inputs

A

Inputs are anything used in the production of a good or service.
An increase in the price of an input decreases the profitability of selling the good, causing a decrease in supply.
An decrease in the price of an input increases the profitability of selling the good, causing an increase in supply.

19
Q

Supply: Technological change

A

A firm may experience a change in its ability to produce a given level of output with a given quantity of inputs

20
Q

Supply: Prices of related goods

A

Substitutes in production: Goods that can be produced using the same resources

Complements in production: Goods that are produced together

21
Q

Supply: Number of fims

A

More firms: Supply increase

Fewer firms: Supply decreases

22
Q

Supply:Producer expectations

A

If a firm anticipates that the price of its product will be higher in the future, it might decrease its supply today in order to increase it in the future.

23
Q

Supply: Disasters and pandemics

A

Less of a good will be supplied due to disruptions in production.

24
Q

Market equilibrium:

A

A situation in which quantity demanded = quantity supplied

25
Q

Prediction when there is a surplus of product

A

Sellers were compete amongst themselves, thus driving the price down

26
Q

Prediction for shortage of goods

A

Sellers will realize they can increase the price and still sell as many pairs of shoes, so the price will rise.

27
Q

Effect of shifts in demand and supply on equilibrium

A

An event that shifts the demand curve, supply curve or both curves will result in a new equilibrium

Econ 101 (9 decks)

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