econ Flashcards
circular-flow diagram
Helps to explain how participants in the economy interact with one another and helps to explain how the economy is organized
Demand Determinets
- price
- expectations
- tastes/preferences
- prices of related goods
- Income
why does a demand curve shifts left?
there is a decrease in demand
Why would a supply curve shift left?
If there is a decrease in the amount supplied
Normal good
an increase in income leads to an increase in demand, and a decrease in income leads to an decrease in demand
Inferior good
an increase in income leads to a decrease in demand, and a decrease in income leads to an increase in demand
Substitute goods
When the price of one increases, the demand for the other increases
Complement good
When the price of one increases, the demand for the other decreases
Supply Determinants
- Price of Inputs
- Technology
- Weather
- Number of Sellers
- Price of Related Goods
Goods with many close substitutes tend to have…
more elastic demands
Demand is said to inelastic if…
the quantity demanded changes only sighly when the price of the good changes (the good is a necessity)
Absolute advantage
If you can produce more of a good with the same amount (or less) of resources as someone else
Comparative Advantage
The situation where someone can produce a good at lower opportunity cost than someone else can
Monopsony
a market in which goods or services are offered by several sellers but there is only one buyer
Inelastic
Price elasticity of demand < 1
Increase the Price = Revenue Increase
Decrease the Price = Revenue Decrease
Unit elastic
Price elasticity of demand = 1
Increase or decrease the price and Revenue stays the same
Elastic
Price elasticity of demand > 1
Increase the Price = Revenue Decrease
Decrease the Price = Revenue Increase
Price elasticity of supply
(% change Quantity Supplied) / (% change in Price)
Cross Price elasticity
Negative # = complementary good
Positive # = supplementary good(substitutue)
Income Elasticity
Negative # = Normal good
Positive # = Inferior good
The burden of the tax falls on…
the buyers when demand is inelastic
the sellers when supply is inelasic
Common Resources
Goods that are rival in consumption but not excludable (Ex: fish in a pond, enviromental resources, etc,) .
Private Goods
Excludable, and Rival in Consumption (Ex. congested toll roads).
Tragedy of the Commons
A parable that illustrates why common resources are used more than is desirable from the standpoint of society as a whole
Marginal Cost (MC)
(Change in Total Cost) / (Change in Output)
Oligopoly
Few seller, many buyers
Marginal Revenue
(change in total revenue) / (change in quanity)
Max profit
MR=MC
Firms will shut down in the long run
price < AVC
Firms will exit the market in the long run when
P<ATC
Shift Supply for Labor
Change in Taste and Preferences
Alternative Opportunities
Immigration
Marginal Cost (Formula)
ChangeTC/ChangeQ
Price elasticity of demand
(% change in quanity demanded)/ (% change in price)
Positive statement
claims that attempt to describe the world as it is (fact)
Normative statement
claims that attempt to prescribe how the world should be (opinion)
Perfect Competition
A market structure in which a large number of firms all produce the same product (many buyers and sellers)
Monopoly
(economics) a market in which there are many buyers but only one seller
% change in Price
(final - initial)/ (intitial) * 100
Marginal Product
The increase in output that arises from an additional unit of input
Monopolistic Competition
Many Buyers and many sellers
Shift Demand for Labor
Demand for Output
Technology
a. labor saving
b. labor augmenting
Immigration (shift left)
Emmigration
What question does scarcity not answer?
How can scarcity be eliminated?
What does a market economy depend on market mechanisms to do?
determine the most efficient way of using resources
How does a “command economy” compare to a “market economy”?
Production and distribution decisions are made by central planners in a command
economy, but not in a market economy.
What tends to occur in countries with high labour costs?
They use more capital rather than labour in the production process.
What is true about goods and services?
They flow in a counter-clockwise direction.
What does the arrow from the product markets to the firms represent?
revenue
What does the arrow from the firms to the product markets represent?
goods and services sold
What does the arrow from the factor markets to the households represent?
money income
What does the arrow from the firms to the factor markets represent?
wages, rent interest, and profits
What is true about the production possibilities curve?
It is a graph that shows the various combinations of output it is possible for an economy to produce given its available resources and technology.
What does the term “ceteris paribus” mean?
What is true for the individual is not necessarily true for the whole
If individuals who sit in the back of the classroom receive lower grades on average than the rest of
the class, does that mean that sitting in the back of a classroom causes one to perform poorly on
exams?
The reoccurrence of a certain relationship between two variables does not
necessarily imply causation.
fallacy of composition
the error of generalizing from the individual to the whole
What is the difference between a positive economic statement and a normative one?
Positive economic statements are descriptive in nature, while normative economic
statements involve value judgments.
Scarcity
Resources are insufficient to satisfy all human desires
What is another term for economic resources?
factors of production
Why is money NOT considered to be an economic resource?
Money is not directly used to produce goods and services.
What causes a shift up and down a demand curve?
a change in the quantity demanded
What causes a shift up and down a supply curve?
a change in the quantity supplied
price floor
min legal price of a good
price ceiling
max legal price of a good
in a competitive market, how are prices determined?
by the interaction of many buyers and many sellers
According to the law of demand, what happens as the price of a good increases?
Buyers desire to purchase less of it.
If the demand for milk is downward sloping, then what will an increase in the price of milk result in?
a decrease in the quantity of milk demanded
What do the income and substitution effects provide an explanation for?
why the demand curve is downward sloping
Are markets always in equilibrium?
No, but if there is no outside interference, they tend to move toward equilibrium.
What
is the result if the government imposes a price floor where quantity supplied is greater than quantity demanded?
Consumers will be able to purchase as many units as desired at that price.
Hamburgers and fries are viewed by consumers to be complements. If the price of hamburgers falls,
what will happen in the market for fries?
The equilibrium quantity supplied will increase
If Canadian consumers decided to boycott grapes to protest working conditions of farm workers,
everything else being equal, what can we expect?
The quantity supplied will fall
Suppose Canada steps up efforts to combat drug trafficking and, with the aid of the U.S. border
patrol, intercepts a significant percentage of cocaine shipments. What will be the impact of this on
the market for cocaine in Montréal?
The supply of cocaine will decrease, causing the price of cocaine to increase
What will the invention of machinery that can double the amount of gold extracted from raw ore
likely lead mining companies to do?
Lower the world price of gold because any given amount can now be produced
more cheaply.
There is an increase in demand for personal computers at the same time their input costs fall. What
can we expect?
The quantity sold will increase, but the effect on price is uncertain.
What action by the government will always cause a surplus?
when the government imposes a price floor above the equilibrium price
