Chapter 3 Flashcards
Markets
bring buyers and sellers together, in/not in person, standardized products bought and sold
Demand curve represents
various amounts consumers are willing to and able to purchase a given product at specific price
Demand is associated with (4)
other things equal, a specific time frame, individual demand and market demand
describe the demand graph
price on y axis, quantity on x, decreasing curve, inverse relationship
Law of Demand
negative/inverse relationship, price falls quantity rises
supporting factors of law of demand (3)
diminishing marginal utility, Income/substitution effect,
diminishing marginal utility
goods and services satisfaction decrease as product is bought repeatedly
Income effect
price of g/s fall=consumer quantity rises with fixed income
Substitution effect
consumers look for substitute products that are similar and are a better deal
Market Demand
combination of all the individual buyers demands
When would the demand curve shift
results in a full shift if a determinate other than price were to change
Determinants of Demand (5)
consumers tastes, number of buyers, income, price of related goods, consumer expectations
Normal Good
demand varies directly with money income
inferior good
goods for which demand varies inversely with income
increasing income effect on goods
increase demand for the better quality good and less for the less quality so it helps normal
decreasing income effect on goods
decreases demand for better quality but raises demand for less quality so it helps inferior
Substitute good
goods and service that can be used in place of each other ex butter and margine,
complementary goods
goods and services used together ex phone and cell service
unrelated goods
products unrelated, ex apple and car, increase or decrease of p have no effect
Consumers expectations effect on demand
consumers predictions and expectations of products can shift demand curve in both directions ex they think price will go up=buy now, price will decline=save
Shift of the whole demand curve is caused by
and is also called
determinant factor other than price
change in demand
shift along the demand curve is caused by
and is also called
price changes of product
change in quantity demanded
how demand increases by shifting to the right
favourable taste, increase #buyers, increase income, decrease inferior good, increase substitute, decrease complementary, consumer predicts high price in future
Supply
amounts that producers are willing and able to produce/make available for sale at specific price
Supply curve graph described
price on y axis, quantity supplied on x-axis, direct relationship (producer/firm view)
Law of Supply
direct relationship, price is revenue!!, offer more product at high price than low to gain revenue
Market Supply
total supply of all markets
Consumer view
higher price we buy less
Producer/firm view
higher price we supply more for revenue
Determinants of Supply shifts (6)
factor price, technology, taxes and subsidies, price of other goods, producer expectations, #of buyers
shift of supply curve is caused by
and is also called
change in determinant other than price
change in supply
shift along supply curve and is also called
change in price of product being supplied
change in quantity of supply
Equilibrium
QD=QS intensions of buyers and producers the same
equilibrium price
price at which QD=QS
Surplus
QS>QD
define Rationing Function of prices
ability of competitive forces of demand, and supply to establish a price at which selling and buying decisions are consistent. push for equilibrium
explain the meaning behind rationing function of prices
buyers who are willing and able to pay eqbm price will obtain product. those who cannot and will not do not obtain product. same for sellers only those who sell at eqbm will sell and those that don’t sell at eqbm price will not sell
Efficient Allocation
Production and Allocative Efficiency
Production Efficiency
production of any good in least costly way while prodicing max quantity of goods
Allocative Efficiency
producing goods and services highly valued by society
how is equilibrium price changed
changes in shift of demand or supply curve
Demand is also marginal
benefit of good
supply is also marginal
cost of good
Complex cases
when s and d change, effect is combination of individual effects and eqbm p and q may be predicted
Government setting prices example
Price Ceiling, Price Floor
Price Ceiling
legally establish maximum price for good and service, often creates a shortage
price ceiling and shortage
if price ceiling is lower than original price to allow more people to buy, so a shortage is created
price ceiling alternate rationing system
standing in line, coupons,
what is the issue of counteracting price ceiling shortages
since consumers are willing to pay higher then government price, incentive under the table deals occur
Price Floor
legally established price above equilibrium, leads to surplus
price floor problems
society devotes to many resources to the price floor, inefficient produces do not exist in market, without price floor, higher cost producers don’t make profit
counteract price floor
government could buy surplus, or allow producers to take some of their inputs out of production
Shortage
QS < QD
