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L1 13 Demand and Supply Analysis: Introduction > Demand and Supply Analysis: Intro > Flashcards

Demand and Supply Analysis: Intro Flashcards

the economic tools for understanding how product and resource markets function and the competitive characteristics of different industries Markets for goods and services to consumers are referred to as goods markets or product markets. Markets for factors of production (raw materials, goods and services used in production) are referred to as factor markets. Goods and services used in the production of final goods and services are referred to as intermediate goods.

1
Q

Distinguish among types of markets

A

Factors Markets (where firms buy)

Goods or Products Markets (services and finished goods) (where firms sell)

Capital Markets: Where firms raise money by selling debt and equities or trade

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2
Q

Principles of demand

A

The Qdx=f(Px,I,Prelated goods)

Law of Demand (most important factor in Demand analysis: As a goods OWN P rises, D falls)

Other variables - consumers inoome, taste preferences, prices of other goods that serve as substitutes or compliments

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3
Q

Principles of Supply

A

Law of Supply: Greater Quantity is supplied at higher prices

Supply depends on the selling price as well as the costs of production which in turn depend on technology, the cost of labor, the cost of other inputs into the production process

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4
Q

Demand curve shifts

A

Income, substitutes, complements, taste, population, expected prices, etc

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5
Q

Demand curve movements

A

Price changes

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6
Q

Supply curve moves

A

Price Changes

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7
Q

Supply curve shifts

A

Technology, Price of Inputs, Sales Tax, Expected Prices, etc aka changes in the prices of inputs

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8
Q

The process of aggregating demand curves

A

Simple, distribute the #consumers amongst the linear demand function

Qd=1-2P

100 people

so AggQd=100(1-2p)

To get market demand curve, invert

Slope is the coefficient of Qd in inverse

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9
Q

the process of aggregating supply curves

A

distribute the #irms amongst the linear supply functions

Qs=1-2P

100 firms

so AggQs=100(1-2p)

To get market supply curve, invert
Slope is the Coefficient of Qs in inverse

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10
Q

The concept of partial equilibrium

A

Assumes that activity in one market does not affect others

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11
Q

the concept of general equilibrium

A

Determines prices and quantities in all markets simultaneously (feedback effect)

What brings all the markets to a general
equilibrium is the change in relative prices

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12
Q

Mechanisms by which markets achieve equilibrium

A

.

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13
Q

Stable equilibrium

A

Price changes due to surplus or shortage will converge to market equilibrium

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14
Q

Unstable equilibrium

A

Demand and Supply both downward sloping (labor market and backward bending supply curve)

Supply more elastic > Demand (supply intersects demand from below)

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15
Q

Price Bubbles

A

The consequence of irrational behavior, not intrinsic value

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16
Q

Instances of stable equilibria

A

.

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17
Q

Instances of unstable equilibria

A

.

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18
Q

Calc, Interpret individual Demand

A

Qd=B-P-Pc+Ps+I+A(advertising)

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19
Q

Calc, Interpret aggregate Demand

A

.

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20
Q

Calc, interpret inverse demand (Price as a function of Qd)

A

P=1/2(b)-Q-Pc+Ps+I+A

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21
Q

Calc, Interpret inverse supply

A

.

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22
Q

Interpret individual demand curves

A

.

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23
Q

Interpret individual supply curves

A

.

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24
Q

Interpret aggregate demand curves

A

.

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25
Q

Interpret aggregate supply curves

A

.

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26
Q

Calc, Interpret consumer surplus

A

Consumers willingness to pay - Actual cost of the good

27
Q

Calc, Interpret producer surplus

A

Producer surplus or PROFIT is the difference between TC (area between MC and Q) and TR (P*Q)

28
Q

Calc, Interpret total surplus

A

.

29
Q

Calc, Interpret the amount of excess demand associated with non-equilibrium price

A

.

30
Q

Calc, Interpret the amount of excess supply associated wtih non-equilibrium price

A

.

31
Q

Describe types of auctions

A

.

32
Q

Calculate the winning prices of an auction

A

.

33
Q

Describe how government regulation and intervention affect demand

A

.

34
Q

Describe how government regulation and intervention affect supply

A

.

35
Q

Forecast the effect of the introduction of a price ploor on price and quantity

A

.

36
Q

Forecast the effect of the removal of a price floor on price and quantity

A

.

37
Q

Forecast the effect of the introduction of a price ceiling on price and quantity

A

.

38
Q

Forecast the effect of a removal of a price ceiling on price and quantity

A

.

39
Q

Calc, Interpret price elasticity of demand

A

.

40
Q

Describe factors that affect price elasticity of demand

A

.

41
Q

Calc, Interpret income elasticity of demand

A

.

42
Q

Describe factors that affects income elasticity of demand

A

.

43
Q

Calc, Interpret cross-price elasticity of demand

A

Cross Price elasticity of Demand :denotes: The ratio in the % change in the Qd of a good relative to a %change in the price of a related good

Substitute relationship ( +Y = +X) An increase in the P of a good increases the D for another good as an increase in the P of one good drives consumers to increase their purchases (D) of the other now less expensive good.

Cross price - more + : substitutes, more - : complements

Inverse, - , complements, cars and gasoline
Positive, +, substitutes, brands of bread
Perfect, shoes, come in pairs must be bought together

44
Q

Describe factors that affect cross-price elasticity of demand

A

.

45
Q

Effect of an increase in income

A

Demand +, P Q +

46
Q

Effect of an Increase in Oil Prices (supply shock)

A

Qs falls, P +

47
Q

Income AND oil increase

A

Demand +, Supply - (cuz, oil shock), higher P at old Q

48
Q

Alias for supply curve

A

MC curve

49
Q

Price Ceiling

A

Rent control - Price is set BELOW market price

50
Q

Price Floor

A

Subsidy - Price is set ABOVE market price

51
Q

Intermediate Goods

A

Goods USED IN the production of FINAL GOODS

52
Q

Subs, Comps and D

A

Psub+ = +Dx

Pcomp+ = -Dx

53
Q

Qd is a simple Linear function

A

Qd= N - Px

Where a $1 increase in the P of X decreases demand by its coefficient

54
Q

“Analyze Demand”

A

The quantity a consumer is willing to buy clearly depends on a number of different factors called variables

Linear Equation>Concentrate a relationship (plug in variables) Price of good Y denotes Income since this is the most important relationship> Isolate Px>Invert the Demand Function (Solve Px in terms Q) >AKA Swap n Solve!! = Inverse Demand Function interpreted as the a 1 unit change in X changes Y by ~N

55
Q

An inverse relationship would indicate that…

A

…the Y and X have a negative cross-price elasticity of demand and thus are complements

56
Q

Economists use…

A

simple linear equations to approximate real-world demand and supply functions in relevant ranges

57
Q

Linear Demand Function + Inverted Linear Demand Function =

A

The graph of the inverse demand function is called the demand curve

58
Q

Demand Curve Interpretation

A

“either the highest quantity a household would buy at a given price or the highest price it would be willing to pay for a given quantity.”`

59
Q

Qdx Interpretation

A

The highest quantity a household would buy at a given price

60
Q

Px interpretation

A

The highest price a household would be willing to pay for a given Q

61
Q

Slope of the Demand Curve

A

ChangeP/ChangeQ

62
Q

The slope of the Demand Curve is the…

A

…coefficient on Qd in INVERSE!

63
Q

“Calculate the vertical intercept (price-axis intercept) of the demand curve if income increases to €3000 per month.”

A

“Calculate the vertical intercept (price-axis intercept) of the demand curve if income increases to €3000 per month.”

chainge I, income to 3000, solve linear (collect like terms), solve for Px (inverse demand function)

64
Q

“Calculate the vertical intercept (price-axis intercept) of the demand curve if income increases to €3000 per month.”

A

“Calculate the vertical intercept (price-axis intercept) of the demand curve if income increases to €3000 per month.”

chainge I, income to 3000, solve linear (collect like terms), solve for Px (inverse demand function)

L1 13 Demand and Supply Analysis: Introduction (17 decks)

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