Chapter 3 Flashcards
Market is
A set of arrangements by which buyers and sellers interact in order to exchange goods and services
Demand is
The quantity of a good buyers wish to purchase at each conceivable price with all other influences in demand remaining unchanged
Supple is
The quantity of a good sellers wish to sell at each conceivable price
What is a homogenous and heterogenous good
Homogenous (like natural gas)- it stays the same no matter what supplier
Heterogenous (like Airbnb) all apartments are different
But there can be a zero supply below some price
no supplier can make a profit (on account of their costs)
What is the relationship between demand, supply and cost
Cost and supply-positive
Cost and demand-negative
What is quantity demanded
The amount purchased at a particular price
What is quantity supplied
The amount supplied at a particular price
What does the phrase ceteris paribus mean
the constancy of other influences
What is the equilibrium price
It is the price at which quantity demand equals the quantity supplied
Excess supply ___
exists when the quantity exceeds the quantity demanded at the going price
Excess demand __
Exists when the quantity demanded exceeds the quantity supplied at the going price
What happens above and below the equilibrium price on excess supply and excess demand
the equilibrium price excess supply exerts downward pressure on price, and
below the equilibrium excess demand exerts upward pressure on price.
What does it mean at non-equilibrium prices the short side
dominates.
when
trading takes place at prices other than the equilibrium price it is always the lesser of the quantity
demanded or supplied that is traded.
Is there any other cost other than monetary
For
example, coal burning power plants emit pollutants into the atmosphere; but the individual supplier
may not take account of these pollutants, which are costs to society at large, in deciding how
much to supply at different prices. Stated another way, the private costs of production would not
reflect the total, or full social costs of production.
2 ways to express demand and supply relationships
- Graphical
- equation
On what axes there is price and quantity of demand
quantity-x
price-y
The demand curve is
a graphical expression of the relationship between price and
quantity demanded, with other influences remaining unchanged
The supply curve is
a graphical expression of the relationship between price and
quantity supplied, with other influences remaining unchanged.
Where supply and demand intercepts is
Equilibrium price for the market
At any price below this the horizontal
distance between the supply and demand curves intercept represents
excess demand
Other influences on quantity demanded
the incomes of buyers; buyer tastes; and expectations
about the future.
Substitute goods and are
when a price reduction (rise) for a related product reduces (increases)
the demand for a primary product, it is a substitute for the primary product
Complementary goods are
when a price reduction (rise) for a related product increases
(reduces) the demand for a primary product, it is a complement for the primary product.
What are inferior goods
one whose demand falls in response to higher incomes
What are normal goods
one whose demand increases in response to higher incomes.
What can be important for the demand for many commodities and services
Distribution of income ( is there a large middle class or if there is an inequality)
How tastes and network can influence demand
If the fashion industry dictates that lapels or long skirts are de rigueur
for the coming season, some fashion-conscious individuals will discard a large segment of their
wardrobe, even though the clothes may be in perfectly good condition
What is network economies
A situation in which a business will benefit through the feedback provided by those who use the product or service
How expectations can influence the current demand
In our natural gas example, if households expected that the price of natural gas was going to stay
relatively low for many years – perhaps on account of the discovery of large deposits – then they
would be tempted to purchase a gas burning furnace rather than an oil burning furnace.
What equilibrate the market
Variation in price
How quantity demand graph will change when households start to earn more
Shift to the right horizontally
What does comparative static analysis do
compares an initial equilibrium with a new equilibrium,
where the difference is due to a change in one of the other things that lie behind the
demand curve or the supply curve.
What was the result of Bush;s decision to produce more ethanol an import less Brazilian cane sugar ethanol ethanol
Price on corn raised->demand for corn increased and the supply
could not be increased to keep up with the demand without an increase in price.
virtually all grains increased
in tandem with corn: the prices of sorghum and barley increased because of a switch in land
use towards corn on account of its profitability.
While farmers benefited from the price rise, consumers – particularly those in less developed
economies – experienced a dramatic increase in their basic living costs.
In 2013-2016 supply increased and prices stabilized
Give an example of positively-sloping supply curve
only the
more efficient producers can make a profit at a low price, whereas at higher prices more producers
or suppliers enter the market – producers who may not be as lean and efficient as those who can
survive in a lower-price environment
Give an example of a horizontal supplu curve
This is the practice of most retailers. For example,
the price of Samsung’s Galaxy is typically fixed, no matter how many are purchased – and tens
of millions are sold at a fixed price when a new model is launched
Supply curves never slope ___
Downward
How technology can influence the supply
As the cost will be lowered, suppliers will be willing to produce more at a lower cost
How increase in salary of a worker will increase the price
It will raise or the quantity at a given price will lower
How will the supply line change if new technologies come and now the suppliers produce the same output at a reduced price
It will change the angel, more towards x axes
In real world what happens to demand and supply curves
They shift at the same time
How supply graph can be vertical?
If the supplier put in fixed number of goods and will sell it at any price
What are price controls
Government rules or laws that inhibit the formation of market-determined prices
What are quotas
Physical restriction on output
What is the problem with price ceilings?
they leave
demand of buyers unsatisfied
Example of price ceiling and price floor
Price ceiling-apartment rent
Price floor-minimal wage
What is the purpose of quotas
keeping prices higher than the free-market equilibrium price
In what sector quotas are widespread?
Agriculture
Market demand is
The horizontal sum of individual demands
General equation form for demand/supply graph
P=a+bQ
a-vertical intercept
b-the slope
How to obtain equilibrium price
Equal supply and demand equations, you get equilibrium quantity, which you plug in in one of the equations
What causes a change in the demand relationship?
The prices of related goods
Consumer incomes
Tastes and network
Expectations
Effect of the number of suppliers in the supply
The greater the number of firms, the greater the supply
Why demand was stronger in 2002 than in 1997?
Income rise and mortgage decrease
The Law of unintended consequences states that
Market controls may have consequences not envisaged or desired
