Chapter 3 Flashcards
What is a “market economy”?
Resources are allocated among households and firms with little or no government interference.
What is the phrase “invisible hand” used to describe?
Unobservable market forces that guide resources to their highest- valued use.
When does a “competitive market” exist?
A competitive market exists when there are so many buyers and sellers that each has only a small (negligible) impact on the market price and output.
When does an “imperfect market” exist?
An imperfect market is one in which either the buyer or the seller can influence the market price.
What is a “monopoly”?
A monopoly exists when a single company supplies the entire market for a particular good or service.
What is “market power”?
Market power is a firm’s ability to influence the price of a good or service by exercising control over its demand, supply, or both.
What is the “quantity demanded”?
The quantity demanded is the amount of a good or service that buyers are willing and able to purchase at the current price.
What is the “law of demand”?
The law of demand states that, all other things being equal, quantity demanded falls when the price rises, and rises when the price falls. This shows a negative relationship between price and the quantity demanded.
- Buyers are more willing to buy when prices are low to increase savings
What is a “demand schedule”?
A demand schedule is a table that shows the relationship between the price of a good and the quantity demanded.
What is “market demand”?
Market demand is the sum of all the individual quantities demanded by each buyer in the market at each price.
What are the factors that shift the demand curve?
- Changes in Buyer’s Income
- The Price of Related Goods (Complements/Substitutes)
- Changes in Tastes and Preferences
- Price Expectation
- The Number of Buyers
- Taxes
What is the “quantity supplied”?
The quantity supplied is the amount of a good or service that producers are willing and able to sell at the current price.
What does the “law of supply” state?
The law of supply states that, all other things being equal, the quantity supplied of a good rises when the price of the good rises, and falls when the price of the good falls.
- Suppliers are more willing to sell at higher prices as they will generate more profit
What is a “supply schedule”?
A supply schedule is a table that shows the relationship between the price of a good and the quantity supplied.
What is “market supply”?
Market supply is the sum of the quantities supplied by each seller in the market at each price.
What are the factors that shift the supply curve?
- The Cost of Inputs
- Changes in Technology or the Production Process
- Taxes and Subsidies
- The number of sellers in the industry
- Price Expectation
What factor does not affect the shift in demand or supply curve?
PRICE
When does “market equilibrium” occur?
Equilibrium occurs at the point where the demand curve and the supply curve intersect.
What is the “equilibrium price” (market-clearing price)?
The equilibrium price is the price at which the quantity supplied is equal to the quantity demanded.
- No shortage or surplus
What is the “law of supply and demand”?
The law of supply and demand states that the market price of any good will adjust to bring the quantity supplied and the quantity demanded into balance.
What is a “shortage” and what is done to adjust the market to reach equilibrium in competitive markets?
A shortage occurs whenever the quantity supplied is less than the quantity demanded.
- Suppliers raise the price until the equilibrium point is reached.
What is a “surplus” and what is done to adjust the market to reach equilibrium in competitive markets?
A surplus occurs whenever the quantity supplied is greater than the quantity demanded.
- Suppliers lower their price in an effort to sell the unwanted goods.
