CoreMicroEconomics_CH_3 Flashcards
What is a market?
Institutions that bring buyers and sellers together so they can interact and transact with each other
What is a price system?
A name given to the market economy beacause prices provide considerable information to both buyers and sellers
What is a demand?
The maximum amount of a product that buyers are willing and able to purchase over some time period at carious priced, holding all other relevant factors constant (the ceteris paribus condition)
In what ways can markets differ?
Geographical location, products offered and size
What information do pricers tell for both the buyer and seller?
If buyers do not buy an item, they are indicating they do not believe the item to be worth its asking price and vice versa. Prices also give buyers an easy means of comparing goods that can substitute for each other. Similarly, sellers can determine what goods to sell by comparing their prices. When prices rise for tennis rackets, this tells sporting goods stores that the public wants more tennis rackets, leading these stores to order more
What is the law of demand?
Holding all other relevant factors constant, as price increases, quantity demanded falls, and as price deceases, quantity demanded rises
What is a demand curve?
Demand schedule information translated to a graph (this demand curve slopes down and to the right which illustrates the law of demand)
What is horizontal summation/how does one find market demand or supply curves?
Market demand and supply curves are found by adding together how many units of the product will be purchased or supplied at each price
What are determinants of demand?
Nonprice factors that affect demand
What are the five key determinants of demand?
Tastes and preferences, income, prices of related goods, the number of buyers, and expectations regarding future prices, income and product availability
What is a normal good?
A good for which an increase in income results in rising demand (like a nicer car)
What is an inferior good?
A good for which an increase in income results in declining demand (like ramen noodles or public transportation)
What are substitute goods?
Goods consumers will substitute one another depending on their relative prices. When the price of one good rises and the demand for another good increases, they are substitute goods, and vice versa
What are complementary goods?
Goods that are typically consumed together. When the price of a complementary good rises, the demand for the other good declines, and vice versa
Changes in demand versus changes in quantity demanded?
Occurs when one or more determinants of demand changes, shown as a shift in the entire demand curve (shift to the left or in is a decrease in demand while a shift to the right or out is an increase in demand). While change in quantity demanded occurs when the price of the product changes, shown as a movement along an existing demand curve
What is supply?
The maximum amount of a product that sellers are willing and able to provide for sale over some time period at various prices, holding all other relevant factors constant
What is the law of supply?
Holding all other relevant factors constant, as price increases, quantity supplied will rise, and as price declines, quantity supplied will fall
What is a supply curve?
Supply schedule information translated to a graph (this supply curve slopes up and to the right which illustrates the law of supply)
What are the six determinants of supply?
Production technology, costs of resources, prices of other commodities, expectations, the number of sellers (producers) in the market, and texas and subsidies
Change in supply versus Change in quantity supplied?
Change in supply occurs when one or more of the determinants of supply change, known as a shift in the entire supply curve (shift to the left or in is a decrease in demand while a shift to the right or out is an increase in demand). While change in quantity supplied occurs when the price of the product changes, shown as a movement along an existing supply curve
What is equilibrium?
Market forces are in balance when the quantities demanded by consumers just equal the quantities supplied by producers (meaning the amount of the product that consumers are willing and able to purchase is matched exactly by the amount that producers are willing and able to sell)
What is equilibrium price?
Market equilibrium price is the price that results when quantity demanded is just equal to quantity supplied (also called the market-clearing price)
What is equilibrium quantity?
Market equilibrium quantity is the output that results when quantity demanded is just equal to quantity supplied
What is a surplus?
Occurs when the price is above market equilibrium, and quantity supplied exceeds quantity demanded (an excess in supply)
What is a shortage?
Occurs when the price is below market equilibrium, and quantity demanded exceeds quantity supplied
What is a price ceiling?
A government-set maximum price that can be charged for a product or service. When the price ceiling is set below equilibrium, it leads to shortages
What is a price floor?
A government-set minimum price that can be charged for a product or service. When the price floor is set above equilibrium, it leads to surpluses
