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Economics Concept 1A > Chapter 3 > Flashcards

Chapter 3 Flashcards

1
Q

What is a market?

A

Markets bring together demanders and suppliers. Some markets are local others are national or international

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2
Q

Define demand

A

Demand is the various amounts of a product that consumers are willing to purchase at each of a series of possible prices during a specified period of time

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3
Q

What does demand show?

A

Demand shows the quantities of a product that will be purchased at various possible prices, other things being equal (ceteris paribus)

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4
Q

What’s a demand schedule?

A

A demand schedule reveals the relationship between the various prices of the product and the quantity of the product a particular consumer would be willing to and able to purchase at each of theses prices

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5
Q

What’s the law of demand?

A

Law of demand in ceteris paribus as the price falls, the quality demand rises and as prices rise the quantity demanded falls, there is a negative/inverse relationship between quantity demanded and price. P↓ → Qd↑ or P↑ → Qd↓

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6
Q

Why is there an inverse relationship between price and quantity demanded?

A
  • Price is an obstacle that deters consumers from buying
  • Each buyer of a product will derive less satisfaction (or benefit or utility) from each successive unit of product consumed. Consumption is subject to diminishing marginal utility
  • The income effect indicates that a lower price increases the purchasing power of buyers’ money income. The substitution effect is that lower-price buyer have the incentive to substitute what is now a less expensive product for similar products that are now relatively more expensive
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7
Q

How will you plot a demand curve?

A

On a demand curve the quantity demanded is on the horizontal axis and the price on the vertical axis. The demand curve is a downward slope that reflects the law of demand

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8
Q

How do you get from individual demand to market demand?

A

By adding the quantities demanded by all individual consumers at each of the various possible prices we get from individual to market demand

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9
Q

How do you calculate market demand?

A

To get to market demand we assume that all the buyers in a market are willing to buy the same amounts at each of the possible price and then multiply those numbers by the number of buyers

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10
Q

What factors affect quantity demand?

A

Price is the most important and only factor that affects quantity demand. Changes in price translates in movement up or down the demand curve.

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11
Q

What’s the correlation between market demand and consumers?

A

The higher the number of consumers the higher the market demand for a specific product

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12
Q

What does price change do to a demand curve?

A

An increase in price causes a movement along the quantity demand curve leading to a decrease in the quantity demanded. A decrease in price increases causes a movement along the quantity demand leading to a increase in quantity demanded

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13
Q

What does the determinants of demand do to a curve and what is it?

A

Determinants of demand are assumed to be constant when a single demand curve is drawn. When these change the curve will shift either to the right or left. A shift to the right causes an increase in demand. A shift to the left causes a decrease in demand.

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14
Q

What are the determines of demand?

A
  1. Consumers taste/preferences
  2. Number of buyers in the market
  3. Income of consumers
  4. Price of related goods
  5. Consumers expectations
  6. Population growth
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15
Q

What does consumer taste do to the demand curve?

A

Consumers’ taste changes that make a product more desirable will increase the demand and vice versa. An increased demand will lead to more demand at each price and shift the demand curve to the right. An decreased demand will lead to less demanded at each price and shift the demand curve to the left

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16
Q

What does increase in the number of buyers do to the demand curve?

A

An increase in the number of buyers in a market will likely lead to an increase in product demand, causing a shift to the demand curve to the right. A decrease in the number of buyers in a market will likely lead to an decrease in product demand, causing a shift to the demand curve to the left.

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17
Q

What are the types of goods affected by the income of consumers?

A
  • Normal goods are products whose demand varies directly with income, which will cause the demand curve to shift to the right. The more you make the more of the product you would buy.
  • Inferior goods are products whose demand varies inversely with income, which will cause the demand curve to shift to the left. If you make more you would by less of the product
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18
Q

What are the types of price related goods?

A
  • Substitute goods: Products that can be used in place of one another. When the price of one falls, its quantity demand increases and then the demand of the other decreases (there is a shift in curve)
  • Complementary goods: Products that are used together with one another. When the price of one falls, the quantity demand increases and the demand for the other also increases
  • Unrelated goods: Independent goods; price change in one has little or no effect on demand for other-
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19
Q

What do consumers expectation do to the demand curve?

A

Consumer expectation is when a newly formed expectation of higher future prices may cause consumers to buy now in order to beat the anticipated price rises and thus increasing current demand, therefore producing a shift to the right on the curve. However an expectation of lower future costs will have the reverse effect

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20
Q

What is population growth important on a demand curve?

A

Population growth as a determinants demand is especially necessary for goods such as food, the higher the population the higher the demand will be

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21
Q

What is the difference between demand and supply?

A

Demand focuses on the consumer while supply focus is the supplier

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22
Q

Define supply

A

Supply is the various amounts of product that producers are willing to make available for sale at each of a series of possible prices during a specified period in time

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23
Q

What is a supply schedule?

A

The supply schedule reveals the relationship between the various prices of the product and the quantity of the product a particular supplier would be willing and able to supply at each of these prices

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24
Q

What is the law of supply?

A

The law of supply is ceteris paribus, as price falls the quantity supplied falls too and prices rises, the quantity supplied increases, there is a positive/direct relationship between quantity supplied and price. P↑ →Qs↑. P↓ → Qs↓

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25
Q

How is the supply curve structured?

A

The supply curve has an upward slope with price on the horizontal axis and quantity supplied on the vertical axis.

26
Q

How do you get market supply?

A

Market supply is derived from individual supply, we sum the quantities supplied by each producer at each price by horizontally adding the supply curves of individual producers

27
Q

What factor affects quantity supplied?

A

Price is the only factor the influences the quantity supplied of any product, this causes an upward or downward movement

28
Q

What are the determinants of supply?

A
  1. Resource prices
  2. Technology
  3. Taxes and subsidies
  4. Prices of other goods
  5. Producer expectations
  6. Number of sellers
29
Q

What do determinants do to a supply curve?

A

Determinants cause the supply curve to shift to the right when increasing supply and the left when decreasing supply

30
Q

How does price of production affect the supply curve?

A

The higher the prices of production resources, the higher the cost of production and hence the higher the price of the product which will decrease incentive of supply and the lower the production resources the lower the price of the product which will increase incentive.

31
Q

How does improvements in technology affect the supply curve?

A

Improvements in technology enables firms to produce units of output with fewer sources and lower prices. This will increase supply and cause the supply curve to shift to the right.

32
Q

How does taxes affect the supply curve?

A

Businesses treat taxes as costs, as it makes goods more expensive. This increases the cost of the product, causing the supplier to make less of it and causing a shift to the left

33
Q

How does subsidiary affect the supply curve?

A

A subsidiary is when the government gives a producer money to absorb the costs, causing it to be less costly to produce an item. Causing an increase in supply of the product. Shifting the curve to the right

34
Q

How do prices of other goods affect supply?

A

Firms that produce a particular good can sometimes use their plant and equipment to produce alternative goods (substitution of goods) that are more profitable, which will decrease the supply of one good but increase the supply of the more profitable good

35
Q

How does changes in expectation change the supply curve?

A

Changes in expectations about the future price of a product may affect the producers current willingness to supply a product, therefore causing a shift in the supply curve depending on if the price is increasing or decreasing

36
Q

How does the number of suppliers affect the supply curve?

A

Ceteris paribus, the larger the number of suppliers the greater the market supply. The supply curve shifts to the right, the smaller the number of firms in the industry the less the market supply. As firms leave an industry, the supply curve shifts to the left.

37
Q

What’s market equilibrium?

A

Market equilibrium is the intersection of the demand and supply curve. The demand curve slopes down, the supply curve slopes upwards and the point of intersection is the equilibrium. At equilibrium the demand=supply and both consumers and producers are happy

38
Q

What’s equilibrium price?

A

Equilibrium price is the price where the intentions of buyer and sellers match.

39
Q

What’s equilibrium quantity?

A

Equilibrium quantity is the when the quantity demanded equals quantity supplied at the equilibrium price in a competitive market

40
Q

What does competition do to equilibrium?

A

Competition among buyers and sellers drives the price to the equilibrium price and it remains their unless it is disturbed by changes in supply or demand (shift in the curve)

41
Q

What is surplus/excess supply?

A

If the price is higher than the equilibrium, suppliers are willing to supply more but consumers are demanding less and the supply leftover is the surplus/excess supply.

42
Q

What does surplus do to price, supply and demand?

A

Surplus brings prices down. This decrease the incentives for suppliers to produce the product and increase the the incentive of consumers

43
Q

What is shortage/excess demand?

A

If the price is lower than the equilibrium, suppliers supply less and consumers demand more and the supply not met is the shortage/excess demand.

44
Q

What will shortage/excess demand to price?

A

Competition in a shortage/ excess of demand will drive price up

45
Q

What is the rationing function of price?

A

The rationing function of prices is the ability of the competition between supply and demand to set a price at which selling and buying decisions is consistent

46
Q

What is productive efficiency?

A

Productive efficiency is the production of any particular good in the least costly way. It is expanding the least value resources to produce the product and making available more valuable resources to produce other goods

47
Q

What is allocative efficiency?

A

Allocative efficiency is the particular mix of goods and services most highly valued by society.

48
Q

What happens to equilibrium when the demand increases and the supply is constant?

A

An increase in demand with a constant supply raises both the equilibrium price and equilibrium quantity.

49
Q

What happens to equilibrium when the supply increases and the demand is constant?

A

An increase in supply with the demand constant reduces equilibrium prices but increases equilibrium quantity.

50
Q

What happens to equilibrium when the supply decreases and the demand is constant?

A

An decrease in supply with the demand constant increases equilibrium prices but decreases equilibrium quantity.

51
Q

What happens to equilibrium when the supply increases and the demand decreases?

A

An increase in supply but a decrease in demand will decrease the equilibrium price but the equilibrium quantity is determined by how great the difference in change is. If the increase in supply is larger the equilibrium quantity increases but if the decrease in demand is greater than the equilibrium quantity will decrease

52
Q

What happens to equilibrium when the supply decreases and the demand increases?

A

If the supply decreases but the demand increases it will increase equilibrium price but the equilibrium quantity is determined by how great the difference in change is. If the decrease in supply is larger the equilibrium quantity decreases but if the increase in demand is greater than the equilibrium quantity will increase

53
Q

What happens to equilibrium when the supply increases and the demand increases?

A

If the supply increases but demand increases it will increase equilibrium quantity but the equilibrium is determined by how great the difference in change is. If the increase in demand is greater the equilibrium price will increase but if the increase in supply is larger the equilibrium price will decrease

54
Q

What happens to equilibrium when the supply decreases and the demand decreases?

A

If the supply decreases but demand decreases it will decrease equilibrium quantity but the equilibrium is determined by how great the difference in change is. If the decrease in demand is greater the equilibrium price will decrease but if the decrease in supply is larger the equilibrium price will increase

55
Q

What are price ceilings?

A

Governments set price ceilings stopping an increase in price of a product making it more affordable. Price ceilings are set on specific products to enable consumers to obtain essential goods or services that they could not afford at the equilibrium price. This leads to demand increase and supply decrease creating shortage

56
Q

What is an effective price ceiling?

A

An effective price ceiling has to be below the equilibrium price.

57
Q

What does the price ceiling do to competition?

A

The price ceiling Pc prevents the usual market adjustment in which competition among buyers bids up price, inducing more production and rationing some buyers out of the market. That process would would continue until the shortage disappeared the equilibrium price and quantity P0 and Q0

58
Q

What is the rationing problem of price ceilings?

A

The rationing problem is that an unregulated shortage does not lead to an equitable distribution of a product, the government must establish some formal system for rationing it to consumers

59
Q

what is the black market?

A

The black market is there because buyers are willing to pay more than the ceiling price. So, the product is illegally bought and sold at prices higher than the legal ones

60
Q

What are price floors?

A

Governments set price floors on labour resources; this is the minimum that wage can be paid. The price increases therefore the quantity supplied will exceed quantity demanded. There will be a persistent excess supply or surplus

61
Q

What is an effective price floor?

A

A price floor is above the equilibrium quantity to be effective, this leads to surplus of labours

Economics Concept 1A (12 decks)

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