Chapter 4+5 Flashcards
What does supply and demand determine?
Determines the price of products and accounts for the rise and fall of prices
What does the market determine?
Determines the price for various goods and services by matching buyers and sellers
What is demand?
The quantity of a good or service that buyers will purchase at various prices during a given period of time
Supply and Demand requires what 2 factors?
Desire and Financial Ability
What does Law of Demand State
States that quantity demand varies inversely with price, as long as other things do not change
What is substitution effect?
As price rises, we substitute similar goods in place. As price falls, n stock up on more of our desired good
What is income Effect
As price declines, customers can:
-Buy more of the desired product
- buy the Same amount with less money
What is Quantity Demanded?
Relationship determine by price
What does law of supply state?
States that quantity suppled will increase if price increases and falls back it decreased
What is market equilibrium?
Quantity demand = quantity supplied
What is price ceiling?
The mandated maximum amount a seller is allow to change for a product/service.
Keeps prices from rising above a certain level
What are some consequences of price ceiling?
- Shortages (if price can’t go higher than what the seller wants, they just wot sell it)
- Poor products (if sellers cannot sell for desired price, quality will not be the best)
3.Fees (“add ons”)
What is price floor?
Establishes a minimum cost for something, a bottom line margin. It keeps price from falling below a certain level
Consequences of price floor?
Surplus: if base price is unreasonable, people will stray away product/service
What causes demand give to shift? PEPTI
- Income: more money = more buying
2.Population: more people = more demand
3.Taste: changing preference will shift demand for products
4.Expectations: having preconceived expeditions for price shift demand
5.Price of Substitute Goods: increased price is substitute goods increased the demand of competing products
What causes supply cure to shift? PTCNN
- Costs: increase/decrease in production costs will affect the quantity of goods produced
- Number of Sellers: if sellers decline and others suppliers don’t increase production supply will decrease at all levels
- Technology: tech advancement /
= more production - Price of Related Outputs: production of one item may affect the supply of another related item
A co- efficient of 1.4 is ?
Elastic
If income in Canada increases, what will happen?
Demand will shift right
An increase in the number of sellers in a market would cause what?
The supply curve shirts right
Restrictions on the amount of a product that individual producers can produce is considered what?
Quota
The additional satisfaction a consumer gains from consuming one or move unit of a good or service is what?
Marginal Utility
Law of demand states what?
Quantity demanded varies inversely with price
As price falls, we purchase more of the desired product, what is this?
Substitute effect
What does the Demand of Complementary Goods state?
An increase in price of a product components another product will directly affect the demand for the product it conpliments
What is elasticity?
The responsiveness to quantities demanded and suppled to changes in price
What as the difference between a change in demand and a change in quantity demanded?
Change in demand shifts the curve left t right, change in quantity demanded refers to a change in point of the curve, the curve itself doesn’t actually change.
If demand elasticity is less than 1, what does that mean ?
Inelastic:change in price causes a smaller change in demand
If demand elasticity is more than 2, what does that mean?
Elastic: change in price causes greater change in demand
What it elasticity is 1?
No change, no effect
Factors affecting demand elasticity are? FAAN
- AVAILABILITY OF SUBSTITUTES: goods with substitutes will be more elastic
- NATURE OF ITEMS: is the item necessary? If yes, quantity will be inelastic
3.FRACTION INCOME SPENT ON ITEM: how much spent on it? Expensive = elastic
- AMOUNT OF TIME AVAILABLE: a good that is inelastic may become elastic over time
What is elasticity of supply?
Measures how responsive the quantity supplied by a seller is to a rise or fall in prices
Factors affecting supply elasticity? CET
1.TIME: the longer the fire period a seller has to increase production, the more elastic the supply
2.EASE OF SHORTAGE: if storage of a product is easy, then the industry will have high supply elasticity
- COST FACTORS: supply is more elastic when an industry has low input expenses
What are some government interventions in markets?
- CEILING PRICES -> long lines, black market, quality may suffer
- FLOOR PRICES -> what to do with surplus ? Consumes get less + pay more
- SUBSIDES: grant of money made to certain industries, how pays for this money? Taxes from citizens
- QUOTAS: limit on how much of a certain product can be produced -> higher prices for consumers, less avail product
What is utility theory?
Attempts to explore the decisions we make when buying + consuming
What is Marginal Utility?
The extra satisfaction a consumer gains from consuming one more unit of a good or service
What is necessity paradox?
The idea that scarcity leads to high Marginal utility (demand) example: reselling
