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ECON 202 Principles Of Microeconomics > Chapters 3&4 > Flashcards

Chapters 3&4 Flashcards

1
Q

market economy

A

resources allocated amount households and firms with little or no government interference

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2
Q

invisible hand

A

refer to unobservable market forces
guides resources to their highest-valued use
“coined by Adam Smith”

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3
Q

competitive market

A

many buyers and sellers that each has a small (negligible) impact on market price and output
-surpluses and shortages are resolved through process of price adjustment

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4
Q

imperfect market

A

either buyer or seller can influence the market price

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5
Q

market power

A

firm’s ability to influence the price of a good or service by exercising control over its demand, supply, or both

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6
Q

monopoly

A

exists when single company supplies the entire market for a particular good or service

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7
Q

quality demanded

A

the amount of a good or service that buyers are willing and able to purchase at the current price

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8
Q

law of demand

A

if all other things are equal, quantity demanded falls when price rises, and quantity demanded rises when price falls

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9
Q

demand schedule

A

table that shows the relationship between the price of a good and the quantity demanded

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10
Q

demand curve

A

graph of the relationship between the prices in the demand schedule and the quantity demanded at those prices

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11
Q

market demand

A

sum of all the individual quantities demanded by each buyer in the market at each price

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12
Q

price change

A

movement along demand curve (cannot shift the demand curve)

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13
Q

Factors that shift the Demand Curve LEFT

Decrease Demand

A
  • income falls (demand for a normal good)
  • income rises (demand for an inferior good)
  • price of a substitute good falls
  • price of a complementary good rises
  • good falls out of style
  • belief that the future price of the good will decline
  • number of buyers in market falls
  • excise or sales taxes increase
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14
Q

Factors that shift Demand Curve RIGHT

Increase Demand

A
  • income rises (demand for a normal good)
  • income falls (demand for an inferior good)
  • price of substitute good rises
  • price of complementary good falls
  • good is currently in style
  • belief that the future price of good will rise
  • number of buyers in the market increase
  • excise or sales taxes decrease
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15
Q

purchasing power

A

how much you can afford

-value of income

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16
Q

normal good

A

consumers buy more as income rises, holding all other factors constant
(ex: meal at restaurant)

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17
Q

inferior good

A

purchased out of necessity rather than choice

ex: hamburger and ramen noodles instead of filet mignon

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18
Q

complements

A

two goods that are used together

  • when price of complementary good increases, demand for related good decreases
    (ex: demand of ink cartridges goes down = photo paper demand goes down)
  • not likely to use one without the other
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19
Q

substitues

A

two goods that are used in place of each other

  • when price of substitute good rises, quantity demanded of good decrease and demand for related good increases
    (ex: playstation 4 price goes up and quantity demanded decline = demand for alternative good increases = Xbox demand increase)
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20
Q

With DEMAND, price and output

A

are negatively related (move in opposite direction)

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21
Q

with SUPPLY, price level and quantity

A

are positively related (move in same direction)

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22
Q

quantity supplied

A

amount of a good or service that producers are willing and able to sell at the current price

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23
Q

law of supply

A

states that..
- quantity supplied increases when the price rises
-quantity supplied falls when price falls
(all other things being equal)

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24
Q

supply schedule

A

table that shows the relationship between the price of a good and the quantity supplied

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25
Q

supply curve

A

graph of relationship between prices in the supply schedule and quantity supplied at those prices

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26
Q

market supply

A

sum of quantities supplied by each seller in market at each price
-calculate: adding together the quantity supplied by individual vendors

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27
Q

Factors that shift the Supply Curve LEFT (Decrease Supply)

A
  • cost of an input rises
  • business taxes increase or subsidies decrease
  • number of sellers decreases
  • price of product is anticipated to rise in the future
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28
Q

Factors that Shift Supply Curve RIGHT (Increase Supply)

A
  • cost of input falls
  • business taxes decrease or subsidies increase
  • number of sellers increases
  • price of product is expected to fall in future
  • business deploys more efficient technology
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29
Q

Factors that shift supply curve

A

(PRICE does NOT cause shift in supply)

  • cost of inputs
  • changes in technology
  • changes in production process
  • taxes
  • subsidies
  • number of firms in industry
  • price expectations
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30
Q

inputs

A

resources used in production process

workers, equipment, raw materials, buildings, and capital goods

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31
Q

Technology improvement enables…

A

-producer to increase output with same resources
- to produce a given level of output with fewer resources
=producers of good discover new and improved technology or better production process THEN increase in supply & supply curve shift to right

32
Q

subsidy

A

payment made by government to encourage consumption or production of a good or service

33
Q

increase in number of sellers in industry…

A

additional firm that enters market increases available supply of good = supply curve shifts right from increased production
VISE VERSA:
-decrease number of firms in industry= supply curve shifts to left

34
Q

Technology

A

(PCs) both demand and supply increases through time
-demand increases as consumers find more uses for new technology
(demand does not increase as fast as supply

35
Q

equilibrium

A

point where demand curve and supply curve intersect

36
Q

equilibrium price

A

price which quantity supplied is equal to quantity demanded
-aka: market clearing price or price clears the market
-movements away from point throw market out of balance
-

37
Q

Price Above Equilibrium

A

surplus exists

38
Q

Price Below Equilibrium

A

shortage exists

39
Q

equilibrium quantity

A

amount which quantity supplied is equal to quantity demanded

40
Q

law of supply and demand

A

states: market price of any good will adjust to bring quantity supplied and quantity demanded into balance

41
Q

shortage

A

occurs whenever quantity supplied is less than quantity demanded
aka: excess demand

42
Q

surplus

A

occurs whenever quantity supplied is greater than quantity demanded
aka: excess supply

43
Q

Demand Increases: Supply Unchanged

A

demand curve shifts right

result: equilibrium price and equilibrium quantity increase

44
Q

Supply Increases: Demand Unchanged

A

supply curve shifts right

result: equilibrium price decreases and equilibrium quantity increases

45
Q

Demand Decreases: Supply Unchanged

A

demand curve shifts left

result: equilib. price and equilb. quantity decrease

46
Q

Supply Decreases: Demand Unchanged

A

supply curve shifts left

result: equilib. price increases and equilib. quantity decreases

47
Q

markets work because…

A

buyers and sellers can rapidly adjust to change prices that bring balance

48
Q

Demand and Supply BOTH Increase

Price and Quantity When Demand and Supply BOTH Change

A
  • demand and supply curves shift RIGHT
  • Shift reinforce each other in quantity (increases), but acts as countervailing forces along price axis
  • price could be higher or lower
49
Q

Demand and Supply BOTH Decrease

Price and Quantity When Demand and Supply BOTH Change

A
  • demand and supply curves shift LEFT
  • shift reinforced to quantity (decreases) but acts as countervailing forces along Price axis
  • price higher or lower
50
Q

Demand Increases and Supply Decreases

Price and Quantity When Demand and Supply BOTH Change

A
  • demand curve shifts to RIGHT = supply curve shift LEFT
  • shifts reinforced with respect to price (increases) but act as countervailing forces along Quantity axis
  • quantity could be higher or lower
51
Q

Demand Decreases and Supply Increases

Price and Quantity When Demand and Supply BOTH Change

A
  • demand curve shifts LEFT = supply curve shift RIGHT
  • shifts reinforce each other with respect to price (decreases) but act as countervailing forces along Quantity axis
  • quantity could be higher or lower
52
Q

Elasticity

A

measure of responsiveness of buyers and sellers to changes in price or income

53
Q

price elasticity of demand

A

measures responsiveness of quantity demanded to a change in price

54
Q

immediate run

A

no time for consumers to adjust their behavior

55
Q

short run

A

period of time when consumers can partially adjust their behavior
-make decisions that reflect our immediate or short-term wants, needs, or limitations

56
Q

long run

A
  • period of time when consumers have time to fully adjust to market conditions
  • make decisions that reflect our wants, needs, and limitations over long time
57
Q

price elasticity of demand formula

A

price elasticity of demand = percentage change in quantity demanded// percentage change in price

58
Q

total revenue

A

amount that firm receives from sale of goods and services

- particular good= price of good x quantity of good sold

59
Q

income elasticity of demand

A

measures how a change in income affects spending

E1 = % change in quantity demanded// % change in income

60
Q

cross-price elasticity of demand

A

measures responsiveness of quantity demanded of one good to a change in price of related good
Ec = % change in quantity demanded of one good// % percentage change in price of related good

61
Q

price elasticity of supply

aka: elasticity of supply & supply elasticity

A

measure of how responsiveness of quantity supplied to change in price
Es = % change in quantity supplied// % change in price

62
Q

% Change in Quantity Demanded

A

(New QD-Old QD)/OQD) *100

63
Q

% Change in Price

A

(New Price - Old Price/Old Price) * 100

64
Q

Price Elasticity Demand and Price ED=0

A

Perfectly Inelastic
-Price Does Not matter
(vet bill to save pet)

65
Q

Price Elasticity Demand and Price 0 >ED >-1

A

Relatively Inelastic
-Price less important than the quantity purchased
(electricity)

66
Q

Price Elasticity Demand and Price ED = -1

A

Unitary

-price and quantity are equally important

67
Q

Price Elasticity Demand and Price -1 > ED > - Infinity

A

Relatively Elastic
-Price is more important than the quantity purchased
(apples)

68
Q

Price Elasticity Demand and Price ED = - infinity

A

Perfectly elastic
-Price is everything
($10 bill)

69
Q

Income Elasticity

EI < 0

A

Inferior Good
No subcategory
(mac & Cheese)

70
Q

Income Elasticity 0

A

Normal Good
Necessity
(milk)

71
Q

Income Elasticity EI > 1

A

Normal Good
Luxury
(diamond ring)

72
Q

Cross-Priced Elasticity

Ec > 0

A

Substitute Good

Pizza Hut & Domino

73
Q

Cross-Priced Elasticity

Ec=0

A

No Relationship of Good

Basketball & Bedroom slippers

74
Q

Cross-Priced Elasticity

Ec<0

A

Complement Good

Turkey & Gravy

75
Q

Price Elasticity of Supply

Es =0

A

Perfectly inelastic

ocean front land

76
Q

Price Elasticity of Supply

0 < Es <1

A

Relatively Inelastic

Cell Phone Tower

77
Q

Price Elasticity of Supply

Es > 1

A 
Relatively Elastic
(Hot Dog Vendor)

ECON 202 Principles Of Microeconomics (7 decks)

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