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ECON 101 > Econ 101 Chp 3 > Flashcards

Econ 101 Chp 3 Flashcards

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1
Q

When did economics start

A

1760s during the industrial revolution

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2
Q

Who made economics a science

A

adam smith

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3
Q

What causes the differences in wealth among nations

A

the power of the division of labour + free markets in raising labour productivity

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4
Q

Define a market in econ

A

a place where people sell items or offer services.

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5
Q

What’s a characteristic of most markets

A

unorganized collections of buyers + sellers

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6
Q

Define a competitive market + influence on the price

A

a narket that has many sellers and buyers - so no single buy or seller can influence the price

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7
Q

When do producers offer items for sale?

A

only if the priceis high enough to cover their oppourtunity cost

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8
Q

how do consumers respond to changing oppourtunity cost?

A

seeking cheaper alternatives to expensive items

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9
Q

Define Price of an object

A

number of dollars that must be given up in exchange for it

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10
Q

Define relative price

A

the ration of 1 price to another

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11
Q

How to calculate the relative price?

A

divide the money price of a good by the money price of a basket of goods + services (price index)

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12
Q

What determines relative prices?

A

the demand + suply model

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13
Q

Money price vs relative price

A

relative = ratio of the price with the price index
money = number of dollar given up for an exchange

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14
Q

If you demand something, then you

A
  1. want it
  2. can afford it
  3. plan to buy it
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15
Q

Define wants

A

unlimited desires or wishes that people have for goods + services.

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16
Q

What does demand reflect?

A

a decision about which wants to satisfy

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17
Q

Define quantity demanded

A

the amount that consumers plan to buy during a given time period at a particular price - a point on the demand curve

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18
Q

is the quantity demanded the same as quantity bought

A

can be different

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19
Q

Define the law of demand

A

ceterus paribus, the higher the price of a good, the smaller is the quantity demanded; the lower the price of a good, the greater is the quantity demanded

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20
Q

Why does higher price reduce the quantity demanded

A
  1. substitution effect
  2. Income effecte
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21
Q

Define the subsitituion effect

A

When the price of a good rises, ceteris paribus, its relative (oppourtunity cost) rises.

Substitutes (other goods that can be used in tis place).

as the opopourtunity cost of a good rises, the incentive to economize on its use + switch to a substitute becomes stronger

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22
Q

Define the income effect

A

when a price rises, ceteris paribus, the price rises relative to income - faced with a higher price + an unchanged income, people cannot afford to buy all the thing the previously brought. They must decreases quantity demanded of some goods + services.

Normally, the good of whose price has increase will be one of the foods that people buy less of.

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23
Q

Define demand

A

the entire relationship between the price of a good + the quantity demanded of that good

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24
Q

Define a demand curve

A

shows the relationship between quantity demanded of a good + its price, ceteris paribus.

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25
Q

define a demand schedule

A

lists the quantities demanded at each price when all other influences on consumers planned purchases remain the same

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26
Q

define a change in demand

A

when any other factor that influences buying plans changes, other than price of the good,

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27
Q

what are the factors that change demand?

A
  1. prices of related goods
  2. expected future prices
  3. income
  4. expected future income + credit
  5. population
  6. preferences
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28
Q

how does the prices of related goods change the demand curve?

A

when the price of 1 good increases, a related good can act as a substitute. thus the demand for the substitute will increase

29
Q

Define a subsitute

A

a good that can be used in place of another good

30
Q

Define a complement

A

a good that is used in conjuction with another good

31
Q

How does expected future prices affect demand?

A

if they expected future prices of a good rises, and if the good can be stored, the oppourtunity cost of obtaining the good for future use is lower today than it will be in the future. thus today’s demand is higher and the future demand will decrease.

32
Q

How does income change hte demand

A

when income increases, consumers buy more of most goods

33
Q

define a normal good

A

demanded increases as income increases
inferior food

34
Q

Define a inferior good

A

demand decreases as income increases

35
Q

How does expected future income/credit change the demand curve?

A

when expected future income or credit increase, a demand for a good might increase now

36
Q

How does population change demand

A

demand is depended on the size + age structure of the population. a larger population means larger demand for all goods + services.

37
Q

how does preferences change demand

A

since preferences determines the value that people pace on each goods + services. preference depends on weather, info, fashion, etc,

38
Q

What does it mean for a form to supply a good or service

A
  1. has resources + technology to produce
  2. can profit from producing it
  3. plans to produce it + sell it
39
Q

What’s the role of resources + technology in the supply of a good or service

A

they are the constraints that limit what is possible

39
Q

Define the quantity supplied of a good or service

A

the amount that producers plan to sell during a given time period at a particular price. - a point on the supply curve

40
Q

Is quantity supplied the same as the quantity sold? all the time

A

no

41
Q

Define the law of supply

A

ceteris paribus, the higher the price of a good, the grater the quantity supplied, the lower the price of a good, the smaller quantity supplied.

42
Q

Why does the higher price increase quantity supplied?

A

marginal cost increases - as the quantity produced of any good increases, the marginal cost of producing the good increases

43
Q

When a price of a good rises, ceteris paribus, why are producers wiling to incur a higher marginal cost?

A

to increase production. the higher price brings forth an increase in the quantity supplied.

44
Q

Define supply

A

refers to the entire relationship between the price of a good + quantity supplied of it

45
Q

define a supply curve

A

shows the relationship between the quantity supplied of a good and its price when all other influences on the producers’ planned sales remain the same

46
Q

define a supply scheudle

A

lists the quantities supplied at each price when all the other influences on producers’ planned sales remain the same

47
Q

what is the minimum supply price in relation to the supply curve and marginal cost?

A

a curve that shows the lowest price at which someone is willing to sell.

this lowest price is the marginal cost.

48
Q

what are the factors that change supply?

A
  1. prices of factors of production
  2. prices of related goods produced
  3. expected future prices
  4. the number of suppliers
  5. technology
  6. the state of nature
49
Q

how does the prices of factors of production change the supply?

A

as the factor of production rises, the lowest price that a producer is willing to accept for that good rises, so supply decreases

50
Q

how does the prices of related goods produced change the supply?

A

complements in production
- goods that must be produced together

substitutes in production - goods that can be produced by using the same resources

51
Q

how does expected future prices change supply

A

if the expected future price of a good rises, the return from selling the good in the future increases and is high than it is today - supply decreases today and increases in the future

52
Q

how does the number of suppliers change the supply

A

as the number of firms that produce a good increases, the supply increases of the good

53
Q

how does technology change the supply?

A

when there’s a technology change that lowers the cost of producing a good, there is more supply

54
Q

how does the state of nature change the suply

A

good weather can increase supply while natural disasters can decrease supply

55
Q

define state of nature

A

all natural forces that influence production, natural environment

56
Q

define equilibrium

A

situation where opposing forces balance each other

57
Q

when does equilibrium in a market occur

A

occurs when the price balances buying plans+ selling plans

58
Q

define the equilibrium price

A

price at which the quantity demanded equals the quanityt supplied

59
Q

define equilibrium quantity

A

the quantity bought + sold at the equilibrium price

60
Q

why does a market move towards its equilibrium?

A

price regulates buying + selling plans
price adjusts when plans don’t match

61
Q

what’s the relationship between price and short and price and surplus?

A

when there’s a shortage - price goes up

when there’s a surplus - price goes down

62
Q

what’s equation of the demand curve when it is a straight line?

A

Price = a - b(quantity demanded)
- a and b are positive constants

63
Q

what does this demand equation tell us?

A
  1. the price at which no one is wiling to buy the good (Qd is zero). if the price is equal to a (the y-intercept)
  2. as the price falls, the quantity demanded increases. If Qd is a positive number, then the price must be less than a. As Qd gets larger the price gets smaller.
  3. the constant b, tells us how fast the maximum price that someone is willing to pay for the good falls as quantity increases. equation tells that slope of the demand curve is -b.
64
Q

what’s the equation of the supply line when it is a straight line?

A

Price = c + d(quantity supplied)

65
Q

what does the supply equation tell us?

A
  1. the price at which sellers are not willing to supply the good (Qs is zero). if price equals to c (y-intercept)
  2. as price rises, the quantity supplied increases. if Qs is a positive number, then price must be greater than c, as Qs increases, the price becomes larger = as quantity increases the minimum price that sellers are to accept for the last unit rises
  3. the constant d tells us how fast the minimum price at which someone is willing to sell the good rises as the quantity increases - the equation tells us that the slope of the supply curve is d.
66
Q

what’s the equation for equilibrium price

A

P* = a-bQ*
P* = c + dQ*

67
Q

what’s the equation for equilibrium quantity

A

a-bQ* = c + dQ*
Q* = (a-c)/(b+d)

ECON 101 (14 decks)

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