Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Economics > Chapter 4-6 > Flashcards

Chapter 4-6 Flashcards

1
Q

What is a competitive market? Briefly
describe a type of market that is not perfectly
competitive.

A

A competetive market is a market in which there are many buyers and sellers of an identical product so that each has a neglible impact on the market price. another typr of market is a monoply which there is only one seller. There are also many other markets that fall between perfect competition and monoply markets.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are the demand schedule and the demand
curve, and how are they related?

A

Demand schedule is a table that shows the relationship of the price of a good and the quantity demanded. Demand curve is the downward sloping line relating price and quantity demanded. Demand curve is just a representation of the deman schedule.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Does a change in consumers’ tastes lead to a movement along the demand curve or a shift in
the demand curve?

A

A change in consumers taste leads to a shift in the demand curve.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Does a change in price lead to a movement along the demand curve or a
shift in the demand curve?

A

A change in price leads to movement along the demand curve.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Popeye’s income declines, and as a result, he
buys more spinach. Is spinach an inferior or
a normal good? What happens to Popeye’s
demand curve for spinach?

A

Since Popeye buys spinach when his income declines the good is inferior. His demand curve for spinach shifts to the right as a result of the decreased income.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are the supply schedule and the supply
curve, and how are they related?

A

The supply schedule is a table showing the relationship of the price of a good and the quantity the producer is willing and able to supply. The Supply curve is just a graph shwoing this relationship in an upwards sloping line.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Does a change in producers’ technology lead to a movement along the supply curve or a shift in the supply curve? Does a change in price lead to
a movement along the supply curve or a shift in
the supply curve?

A

A change in technology leads to a shift in the supply curve. A chang in price leads to movement along the supply curve.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Define the equilibrium of a market. Describe
the forces that move a market toward its
equilibrium.

A

The equalibrium price is the point at which the quantity demanded is eqaul to the quantity supplied. For Surpluses: Sellers try to increase their sales by cutting prices, that continues until they reach the equalibrium price. For Shortages: Sellers can raise their price without losing consumers, that continues until they reach the equalibrium price.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Beer and pizza are complements because they are often enjoyed together. When the price of beer rises, what happens to the supply, demand, quantity supplied, quantity demanded, and the
price in the market for pizza?

A

When the price of beer rises, the demand for pizza declines, because beer and pizza are complements, and people want to buy less beer. When we say the demand for pizza declines, we mean that the demand curve for pizza shifts to the left as in the graph below. The supply curve for pizza is not affected. With a shift to the left in the demand curve, the equilibrium price and quantity both decline, as the figure shows. Thus, the quantity of pizza supplied and demanded both falls. In sum, supply is unchanged, demand is decreased, quantity supplied declines, quantity demanded declines, and the price falls.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Describe the role of prices in market economies.

A

Prices play a vital role in market economies because they bring markets into equilibrium. If the price is different from its equilibrium level, the quantity supplied and quantity demanded are not equal. The resulting surplus or shortage leads suppliers to adjust the price until equilibrium is restored. Prices thus serve as signals that guide economic decisions and allocate scarce resources.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Why does the
demand curve slope downward?

A

The demand curve slopes downward because of the law of demand - other things being equal, when the price of a good rises, the quantity demanded of the good falls. People buy less of a good when it’s price rises, both because they can’t afford the good and they canswitch to other goods.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Why does the
supply curve slope upward?

A

When the price is high, suppliers profit increases, thats why they want to supply more output to the market. The result is the law of supply - other things equal, when the price of a good rises, so does the quantity supplied of that good.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Surplus

A

When the price is above the equalibrium sellers wanr to sell more than buyers want to buy.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Shortage

A

When the price is belowt ht equalibrium, buyers want to buy more than sellers want to sell.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Compliments

A

Two goods for which an increase in the price of
one leads to a decrease in the demand for the other

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Subsitutes

A

Two goods for which an increase in the price of
one leads to an increase in the demand for the other

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Inferior good

A

A good for which, other things equal, an increase in income leads to a decrease in demand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Normal good

A

A good for which, other things equal, an increase
in income leads to an increase in demand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Quantity demanded

A

The amount of a good that buyers are willing
and able to purchase

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Law of demand

A

The claim that, other things equal, the quantity
demanded of a good falls when the price of the
good rises

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Quantity supplied

A

The amount of a good that sellers are willing and able to sell

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Law of supply

A

The claim that other things equal, the quantity supplied of a good rise when the price of the good rises

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Law of supply and
demand

A

The claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Three Steps for
Analyzing Changes in
Equilibrium

A
  1. Decide whether the event shifts the supply or demand curve (or perhaps both).
  2. Decide in which direction the curve shifts.
  3. Use the supply-and-demand diagram to see how the shift changes the equilibrium price and quantity.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Elasticity

A

A measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Price elasticity of
demand

A

A measure of how much the quantity demanded
of a good responds to a change in the price of
that good, computed as the percentage change
in quantity demanded divided by the percentage change in price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Total revenue

A

The amount paid by buyers and received
by sellers of a good, computed as the price
of the good times the quantity sold

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Income elasticity
of demand

A

A measure of how much the quantity demanded
of a good response to a change in consumers’
income, computed as the percentage change
in quantity demanded divided by the percentage change in income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Cross-price elasticity
of demand

A

A measure of how much the quantity demanded
of one good response to a change in the price of
another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Price elasticity of
supply

A

A measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

List and explain the four determinants of the
price elasticity of demand discussed in the
chapter.

A

Availability of close substitutes - goods with things that can be easily substituted are more elastic, necessities vs. Luxuries- luxuries are more elastic because people don’t need them as the price goes up, the definition of the market - narrowly defined market = more elastic demand and time horizon - goods tend to have more elasticity over time.

32
Q

What is the main advantage of using the
midpoint method for calculating elasticity?

A

It computes a percentage change by dividing the change by the average of the initial and final levels. So it gives the same answer regardless of the direction of change.

33
Q

If the elasticity is greater than 1, is demand
elastic or inelastic? If the elasticity equals 0,
is demand perfectly elastic or perfectly
inelastic?

A

IF the elasticity is greater than 1, the demand is elastic. If the demand is 0, the demand is perfectly inelastic.

34
Q

If demand is elastic, how will an increase in
price change total revenue? Explain.

A

An increase in price will reduce the total revenue. the demand and quantity decreases.

35
Q

What do we call a good whose income
elasticity is less than 0?

A

The good is inferior because its a good you wouldn’t usually buy unless you needed a cheaper item. As income rises, quantity demanded declines.

36
Q

How is the price elasticity of supply calculated?
Explain what it measures.

A

Pice elasticity is calculated by the steepness of the curve. Steeper = more inelastic, later = more elastic.

37
Q

What is the price elasticity of the supply of Picasso paintings?

A

The price elasticity of the supply of Picasso’s paintings is zero because no matter how high the price is there is no more supply being produced since he is dead.

38
Q

Is the price elasticity of supply usually larger in
the short run or in the long run? Why?

A

The price elasticity of supply is usually lower in the long run because the longer the time horizon, the longer people have to change their habits or goods produced.

39
Q

How can elasticity help explain why drug
interdiction could reduce the supply of drugs,
yet possibly increase drug-related crime?

A

Elasticity can show how the demand for drugs is likely to be inelastic, an increase in the price will lead to a rise in total expenditure, therefore, drug users may resort to theft or burglary to support their habits.

40
Q

Price ceiling

A

A legal maximum on the
price at which a good can
be sold

41
Q

Price floor

A

A legal minimum on the
price at which a good can
be sold

42
Q

tax incidence

A

the manner in which
the burden of a tax is shared
among participants in a
market

43
Q

Give an example of a price ceiling and an example of a price floor.

A

An example of a price ceiling is rent control where landlords can’t charge their tenants anything above a given price. An example of a price floor is minimum wage when employers can’t change their employees anything below a given price.

44
Q

Which causes a shortage of a good—a price
ceiling or a price floor? Justify your answer
with a graph.

A

A binding price ceiling causes a shortage of goods because buyers want to buy more than sellers want to produce.

45
Q

What mechanisms allocate resources when the
price of a good is not allowed to bring supply
and demand into equilibrium?

A

Rationing mechanisms and subsidies allocate resources. They do this by giving out supply or only buying from places due to preferences or certain connections.

46
Q

Explain why economists usually oppose controls on prices.

A

Markets are usually a good way to organize economic activity, which is one of the ten principles of Economics. To economists, prices are not the outcome of some haphazard process

47
Q

Suppose the government removes a tax on
buyers of a good and levies a tax on the same
size on sellers of the goods. How does this
change in tax policy affects the price that
buyers pay sellers for this good, and the amount buyers are out of pocket including the tax, the amount sellers receive net of the tax, and the quantity of the goods sold?

A

The price that buyers pay sellers for this good is higher since the supply curve shifts to the left. The amount buyers are out of pocket including the tax is more than before. The amount sellers receive net of the tax is less and the quantity of the goods sold is less.

48
Q

How does a tax on a good affect the price paid
by buyers, the price received by sellers, and the
quantity sold?

A

When a good is taxed, buyers and sellers of the good share the burden of the tax. The quantity sold is decreased.

49
Q

What determines how the burden of a tax is
divided between buyers and sellers? Why?

A

The tax burden falls more heavily on the side of the market that is more elastic. to consume this particular good. A small elasticity of supply means that sellers do not have good alternatives to producing this particular good. When the good is taxed, the side of the market with fewer good alternatives is less willing to leave the market and must, therefore, bear more of the burden of the tax.

50
Q

Tax wedge

A

the difference between the buyer pays and the seller receives after a tax has been imposed

51
Q

Price takers

A

Buyers and sellers in perfectly competitive markets

52
Q

If a good is normal then what will an increase in income result in?

A

An increase in the demand for the good

53
Q

What happens to substitutes when one good is decreased in price?

A

Decrease in the demand for other goods

54
Q

If the cross-price elasticity between two goods is negative, what are the goods most likely to be?

A

Compliments

55
Q

If a fisherman must sell all of his daily catch before it spoils for whatever price he is offered, once the fish are caught, what is the fisherman’s price elasticity for the supply of fresh fish? Why?

A

Zero

56
Q

Suppose the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market?

A

The equilibrium quantity would increase, but the impact on the equilibrium price would be ambiguous.

57
Q

Which has a steeper curve, price elastic or inelastic?

A

Price inelastic

58
Q

If the demand is in a straight line, what is the price elasticity of demand?

A

elastic in the upper portion and inelastic in the lower portion.

59
Q

If the income elasticity for a good is negative, what is it?

A

Inferior

60
Q

If the price of Pepsi increases by one cent and this induces you to stop buying Pepsi altogether and switch to Coca-Cola, what is your price elasticity of demand for Pepsi, and is it considered elastic or inelastic?

A

Infinite, there for it is perfectly elastic.

61
Q

Suppose your income rises by 20 percent and your quantity demanded of eggs falls by 10 percent. What is the value of your income elasticity of demand for eggs? Are eggs normal or inferior goods to you?

A

-0.10/0.20 = - 1.2 Eggs are inferior good

62
Q

Suppose a firm is operating at half capacity. Is its supply curve for output likely to be relatively elastic or inelastic? Why?

A

elastic because a small increase in price will induce their firm to increase production by a large amount.

63
Q

If a demand curve is linear, is the elasticity constant along the demand curve? Which part tends to be elastic and which part tends to be inelastic? Why?

A

No. the upper part tends to be elastic while the lower part tends to be inelastic. This is because on the upper part, for example, a one unit change in the price is a small percentage change, while a one-unit change in quantity is a large percentage change. This effect is reversed on the lower part of demand.

64
Q

Suppose that at a price of $2.00 per bush, the quantity supplied of corn is 25 million metric tons. At a price of $3.00 per bush, the quantity supplied is 30 million metric tons. What is the elasticity of supply for corn? Is supply elastic or inelastic?

A

(25mill-30mill / 30mill + 20mill / 2) / (3-2/2+3/2) = 0.45
Supply is inelastic.

65
Q

Suppose that when the price of apples rises by 20 percent, the quantity demanded of oranges rises by 6 percent. What is the cross-price elasticity of demand between apples and oranges? Are these two goods substitutes or complements?

A

0.06/0.20 = 0.30, apples and oranges are substitutes, because the cross-price elasticity is positive (an increase in apples causes an increase in oranges)

66
Q

When we use the model of supply and demand to analyze a tax that is collected from the buyers, which way do we shift the demand curve? Why?

A

When the demand curve is shifted downward by the size of the tax because the amount the buyer is willing to offer the seller has been reduced precisely by the size of the tax.

67
Q

Suppose a gas-guzzler tax is placed on luxury automobiles. Who will likely bear the greater burden of the tax, the buyers of luxury autos or the sellers? Why?

A

The sellers will bear the greater burden because the demand for luxuries tends to be highly elastic. That is, when the price buyers pay rises due to tax, wealthy buyers can easily shift their purchases towards alternative item while producers cannot quickly reduce production when the price, they receive falls. The burden falls on the side of the market that is less elastic.

68
Q

Which market side is more likely to lobby the government for a price floor?

A

the sellers

69
Q

The surplus caused by a binding price floor will be greatest if…

A

supply is elastic and demand is inelastic.

70
Q

What is an example of a price floor?

A

Minimum wage

71
Q

What is an example of a price ceiling?

A

Rent control.

72
Q

Within the supply-and-demand model, a tax collected from the buyers of a good shifts the demand curve.

A

demand curve downwards by the size of the tax per unit

73
Q

The burden of a tax falls more heavily on the sellers in a market when…

A

the supply curve is more inelastic.

74
Q

What is the impact on the price and quantity in a market if a price ceiling is set above the equilibrium price? Why?

A

no impact

75
Q

What is the impact on the price and quantity in a market if a price ceiling is set below the equilibrium price?

A

binding, creates a shortage.

Economics (7 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions