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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
supply curve
graph of relationship between prices in the supply schedule and quantity supplied at those prices
26
market supply
sum of quantities supplied by each seller in market at each price -calculate: adding together the quantity supplied by individual vendors
27
Factors that shift the Supply Curve LEFT (Decrease Supply)
- 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
28
Factors that Shift Supply Curve RIGHT (Increase Supply)
- 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
29
Factors that shift supply curve
(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
30
inputs
resources used in production process | workers, equipment, raw materials, buildings, and capital goods
31
Technology improvement enables...
-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
subsidy
payment made by government to encourage consumption or production of a good or service
33
increase in number of sellers in industry...
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
Technology
(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
equilibrium
point where demand curve and supply curve intersect
36
equilibrium price
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
Price Above Equilibrium
surplus exists
38
Price Below Equilibrium
shortage exists
39
equilibrium quantity
amount which quantity supplied is equal to quantity demanded
40
law of supply and demand
states: market price of any good will adjust to bring quantity supplied and quantity demanded into balance
41
shortage
occurs whenever quantity supplied is less than quantity demanded aka: excess demand
42
surplus
occurs whenever quantity supplied is greater than quantity demanded aka: excess supply
43
Demand Increases: Supply Unchanged
demand curve shifts right | result: equilibrium price and equilibrium quantity increase
44
Supply Increases: Demand Unchanged
supply curve shifts right | result: equilibrium price decreases and equilibrium quantity increases
45
Demand Decreases: Supply Unchanged
demand curve shifts left | result: equilib. price and equilb. quantity decrease
46
Supply Decreases: Demand Unchanged
supply curve shifts left | result: equilib. price increases and equilib. quantity decreases
47
markets work because...
buyers and sellers can rapidly adjust to change prices that bring balance
48
Demand and Supply BOTH Increase | Price and Quantity When Demand and Supply BOTH Change
- 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
Demand and Supply BOTH Decrease | Price and Quantity When Demand and Supply BOTH Change
- demand and supply curves shift LEFT - shift reinforced to quantity (decreases) but acts as countervailing forces along Price axis - price higher or lower
50
Demand Increases and Supply Decreases | Price and Quantity When Demand and Supply BOTH Change
- 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
Demand Decreases and Supply Increases | Price and Quantity When Demand and Supply BOTH Change
- 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
Elasticity
measure of responsiveness of buyers and sellers to changes in price or income
53
price elasticity of demand
measures responsiveness of quantity demanded to a change in price
54
immediate run
no time for consumers to adjust their behavior
55
short run
period of time when consumers can partially adjust their behavior -make decisions that reflect our immediate or short-term wants, needs, or limitations
56
long run
- 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
price elasticity of demand formula
price elasticity of demand = percentage change in quantity demanded// percentage change in price
58
total revenue
amount that firm receives from sale of goods and services | - particular good= price of good x quantity of good sold
59
income elasticity of demand
measures how a change in income affects spending | E1 = % change in quantity demanded// % change in income
60
cross-price elasticity of demand
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
price elasticity of supply | aka: elasticity of supply & supply elasticity
measure of how responsiveness of quantity supplied to change in price Es = % change in quantity supplied// % change in price
62
% Change in Quantity Demanded
(New QD-Old QD)/OQD) *100
63
% Change in Price
(New Price - Old Price/Old Price) * 100
64
Price Elasticity Demand and Price ED=0
Perfectly Inelastic -Price Does Not matter (vet bill to save pet)
65
Price Elasticity Demand and Price 0 >ED >-1
Relatively Inelastic -Price less important than the quantity purchased (electricity)
66
Price Elasticity Demand and Price ED = -1
Unitary | -price and quantity are equally important
67
Price Elasticity Demand and Price -1 > ED > - Infinity
Relatively Elastic -Price is more important than the quantity purchased (apples)
68
Price Elasticity Demand and Price ED = - infinity
Perfectly elastic -Price is everything ($10 bill)
69
Income Elasticity | EI < 0
Inferior Good No subcategory (mac & Cheese)
70
Income Elasticity 0
Normal Good Necessity (milk)
71
Income Elasticity EI > 1
Normal Good Luxury (diamond ring)
72
Cross-Priced Elasticity | Ec > 0
Substitute Good | Pizza Hut & Domino
73
Cross-Priced Elasticity | Ec=0
No Relationship of Good | Basketball & Bedroom slippers
74
Cross-Priced Elasticity | Ec<0
Complement Good | Turkey & Gravy
75
Price Elasticity of Supply | Es =0
Perfectly inelastic | ocean front land
76
Price Elasticity of Supply | 0 < Es <1
Relatively Inelastic | Cell Phone Tower
77
Price Elasticity of Supply | Es > 1
``` Relatively Elastic (Hot Dog Vendor) ```

ECON 202 Principles Of Microeconomics (7 decks)

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