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GROSS - Economics > Chapter 3: Supply, Demand, & Market Price > Flashcards

Chapter 3: Supply, Demand, & Market Price Flashcards

1
Q

What is PRICE DIRECTED MARKET SYSTEM?

A

price of a product is determined by supply and demand

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2
Q

What is SUPPLY?

A

refers to the number of items that sellers are willing and able to purchase at various prices

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3
Q

What is DEMAND?

A

the quantiles of a product that people are willing and able to purchase at various prices

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4
Q

What are the two functions prices serve?

A
  • rationing effect

- production motivating function

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5
Q

What is RATIONING EFFECT?

A

the more scarce something is, the higher the price will be and the less people will be able to buy it

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6
Q

What is PRODUCTION MOTIVATING FUNCTION?

A

prices serve to encourage producers to increase or decrease their level of output

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7
Q

What is INVENTORY?

A

a stock of goods held by a business yet unsold

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8
Q

What is the LAW OF DEMAND?

A

states as price increases the quantity of a good that would be purchased decreases and vice versa

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9
Q

What is DESIRE?

A

wishful thinking

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10
Q

What is the difference between desire and demand?

A

desire is wishful thinking whereas demand is ready, willing, and able to

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11
Q

What is DEMAND SCHEDULE?

A

a table showing the quantiles of a product that would be purchased at various prices

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12
Q

When do we (consumers) buy more…?

A

when the prices are lower

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13
Q

Why does demand behave the way it does?

A
  • more people can afford to buy an item at a lower price
  • at a lower price, some people will substitute
  • diminishing marginal utility
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14
Q

What is DIMINISHING MARGINAL UTILITY?

A

last item consumed will be less satisfying than those before

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15
Q

Construct a demand schedule

A 
.25 - 195
.50 - 190
.75 - 175
1.00 - 125
1.25 - 85
1.50 - 65
1.75 - 50
2.00 - 40
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16
Q

What does demand refer to?

A

consumers

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17
Q

What does supply refer to?

A

sellers, producers, production

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18
Q

Construct a demand graph

A 
SEE NOTEBOOK
price along y - axis (2.00 on top and .25 on bottom closest to 0)
amount given along x - axis (0 to 500)
line is decreasing (start at 200 and 40)
line hits dmu at 200
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19
Q

What is ESCLASTITY OF DEMAND?

A
  • a proportional change in quantity demanded given a proportional change in price
  • it describes the degree in which the demand for something would vary at different price levels
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20
Q

Elastic means it its…?

A

not needed

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21
Q

Inelastic means it is…?

A

needed

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22
Q

What is REVENUE TEST?

A

total revenue is equal to the price times the number of units sold

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23
Q

What is another name for REVENUE?

A

sales

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24
Q

What is another name for SALES?

A

revenue

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25
Q

What do you do to determine if something is elastic?

A

run the revenue test

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26
Q

If following a price increase, total revenue should _____ and demand would be ______

A

if following a price increase, total revenue should fall and demand would be elastic

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27
Q

If total revenue were to increase following a price increase, demand would be _______

A

if total revenue were to increase following a price increase, demand would be inelastic

28
Q

If total revenue increased following a price decrease, demand would be ________

A

if total revenue increased following a price decrease, demand would be elastic

29
Q

If the price decrease led to a decrease in total revenue, demand would be _________

A

if the price decrease led to a decrease in total revenue, demand would be inelastic

30
Q

Why is demand inelastic?

A
  • they are necessities
  • difficult to find substitutes
  • relativity inexpensive
31
Q

As prices fall, what do consumers want?

A

they want products but inly to a certain point

32
Q

What are two examples that will alter (change) demand and how do they alter it?

A
  • DQ closes in the winter bc their no demand for ice creme when it is cold (decrease)
  • A study is released that supports (increase) or does not support (decrease) your product
33
Q

Construct a change in demand graph

A

SEE NOTEBOOK

GRAPH IS DECREASING
price is along the y - axis (2.00 - 0 which is at the origin)
quantity is along the x - axis (0 - 300)
original line starts at 2.00 and ends at 200
increase line starts at 2.00 and ends at 300
decrease line starts at 2.00 and ends at 100

*draw arrows inside the lines (original to whichever line needs to be drawn) (arrow head should be pointed at second line drawn)

34
Q

What is THE LAW OF SUPPLY?

A

states that sellers will offer more of a product at a higher price and less at a lower price

35
Q

Construct a supply scheduel

A 
.25 - 40
.50 - 50
.75 - 80
1.00 - 125
1.25 - 175
1.50 - 235
1.75 - 265
2.00 - 300
36
Q

Construct a supply graph

A

SEE NOTEBOOK
price along y - axis (2.00 on top and .25 on bottom closest to 0)
amount supplied along x - axis (0 to 300)
line is increasing (start at .25 and 25 then increase until you get to 2.00 and 300)

37
Q

Changes in supply can be effect by what three things?

A
  • changes in the cost of production
  • other profit opportunities
  • future expectations
38
Q

If production goes up, supply ________

A

will then go down

39
Q

If production goes down, supply ________

A

will then go up

40
Q

Supply decreases when _________

A

the cost of production increases

41
Q

Supply rises when _________

A

the cost of production decreases

42
Q

What are OTHER PROFIT OPPORTUNITIES?

A

things that producers could make but don’t unless prices go up then they switch

43
Q

Explain other profit opportunities…

A

corn farmers will farm apples if the price of apples rise higher than the price of corn in order to gain more profit

44
Q

What are FUTURE EXPECTATIONS?

A

producers anticipate what is going to happen to demand in the future

45
Q

Construct a change in supply graph

A

SEE NOTEBOOK

GRAPH IS INCREASING
price is along the y - axis (2.00 - 0 which is at the origin)
supply is along the x - axis (0 - 500)
original line starts at 0 and ends at 300
increase line starts at 0 and ends at 500
decrease line starts at 0 and ends at 200

Make sure to draw dotted line down from either increase or decrease line

46
Q

What is MARKET PRICE?

A
  • price at which goods and money will actually be exchanged

- price at which supply actually equals demand

47
Q

When is demand equal to supply?

A

1.00

48
Q

Construct an equilibrium graph

A

SEE NOTEBOOK

GRAPH FORMS A WIERD X
Demand line starts in the top left and goes to the bottom right (decreasing)
Supply line starts in the bottom left and goes to the top right (increasing)
Graphs intersect at 1.00 (draw line down and label equilibrium and 1.00)

49
Q

What is EQUILIBRIUM?

A

the point at which things will remain stable as long as the components remain unchanged

50
Q

When can equilibrium only occur?

A

in a perfect market

51
Q

What is a PERFECT MARKET?

A

a market that operates under the conditions of pure competition

52
Q

What are the 4 characteristics of a perfect market?

A

1) buyers and sellers have full knowledge of the prices quoted in the market
2) you have many buyers and sellers so no individual can control prices
3) products are identical with one another, therefore it would make no sense foe buyers to pay more nor for sellers to take less
4) buyers and sellers are free to enter or exit the market

53
Q

What is EXCESS QUANTITY DEMANDED?

A

the amount of a product that would be sold at a price higher than the previous market price

54
Q

Explain EXCESS QUANTITY DEMANDED…

A

At .50, consumers want 190 but producers only give 50. So, prices need to rise

55
Q

What is EXCESS QUANTITY SUPPLY?

A

the difference between the amount that buyers would be willing to purchase at prices above equilibrium and the amount that sellers would put on the market at those prices

56
Q

Explain EXCESS QUANTITY SUPPLY…

A

At 2.00, producers want to give consumers 300 but consumers only want 40. So, prices need to fall

57
Q

What is CLEARING THE MARKET?

A

going from excess quantity demanded to excess quantity supply

58
Q

What does an increase in the market price result in?

A

a decrease in supply

59
Q

What does an increase in supply result in?

A

a decrease in the market price

60
Q

What does a decrease in the market price result in?

A

an increase in supply

61
Q

What does a decrease in supply result in?

A

an increase in the market price

62
Q

What does an increase in demand result in?

A

an increase in the market price

63
Q

What does a decrease in demand result in?

A

a decrease in the market price

64
Q

What is another name for equilibrium?

A

market price

65
Q

What is another name for market price?

A

equilibrium

GROSS - Economics (7 decks)

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