Econ Ch 3 Flashcards

1
Q

law of demand

A

there is an inverse (negative) relationship between the price of a good and the quantity that buyers are willing to purchase

Results in a downward sloping curve

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2
Q

why inverse relationship

A

price up,, buy less
price down, buy more

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3
Q

deriving the demand curve

A

be able to

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4
Q

what does the height represent of the demand curve

A

the max price that consumers are willing to pay for an additional unit

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5
Q

consumer surplus

A

the difference between the maximum amount consumers would be willing to pay and the amount that they actually pay
area below curve but above price
area of a triangle
willing to pay - cost

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6
Q

consumer surplus cannot be negative because

A

cost !> willingness because then no one will buy it

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7
Q

change in quantity demanded

A

a movement along the curve

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8
Q

what causes a change along the curve

A

a change in the current price of that good

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9
Q

increase in quantity demanded vs decrease in quantity demanded

A

increase- down the curve (to the right)

decrease - up the curve (to the left)

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10
Q

change in demand

A

a shift of the curve

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11
Q

what causes change in the shift of the curve

A

a change in anything that affects your desire to buy the good other than the current price of the good

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12
Q

increase vs decrease in demand

A

increase - curve shifts right

decrease - curve shifts left

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13
Q

shifters in demand

A
  1. change in consumer income
    normal goods- income up, demand up
    inferior foods - income up, demand down
  2. change in number of consumers
    consumers up, demand up
  3. change in the price of a related good
    substitutes - substitute increases, demand of other increases
    compliments - price of one up, the demand of the other decreases
  4. change in expectations
    expected change in price- price to go up, current demand up
    expected change in income- income to go up, current demand increases
  5. change in consumer tastes and preferences
    - taste and preference go up, demand goes up
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14
Q

law of supply

A

there is a direct (positive) relationship between the price of a good or service and the amount that suppliers are willing to produce

  • as price increases, the quantity supplied increases
  • mind of the seller
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15
Q

what does the height of the supply curve represent

A

the minimum price necessary to induce producers to supply that additional unit

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16
Q

producer surplus

A

the difference between the minimum price suppliers is willing to accept and the price they actually receive

pay - want

17
Q

change in quantity supplied

A

a movement along the curve

18
Q

what causes a change in a movement along the curve

A

a change in the current price of that good

19
Q

increase in quantity supplied vs decrease in quantity supplied

A

increase - movement up the curve -right

decrease - movement down the curve - left

20
Q

change in supply

A

a shift of the curve

21
Q

what causes a shift of the curve

A

anything that affects your desire to produce and sell the good other than the current price of the good

22
Q

increase in supply vs decrease in supply

A

increase - curve shifts right

decrease - curve shifts left

23
Q

shifters of supply

A
  1. a change in resource price
    price of resource up, supply less
  2. a change in technology
    more tech, more supply
  3. changes in nature or politics
    depends
  4. changes in taxes
    taxed more, do less, supply less
24
Q

inelastic

A

change in quantity are not sensitive to change in price (inelastic curves are steeper)

25
Q

elastic

A

change in quantity are sensitive to change in the price (elastic curves are flatter)

26
Q

perfectly inelastic

A

not sensitive to change at all

vertical line

27
Q

perfectly elastic

A

lots of substitutes

28
Q

market equilibrium

A

A state in which the conflicting forces of supply and demand are in balance
Occurs when the demand curve intersects the supply curve

29
Q

in market equilibrium…

A

All trades that generate more benefit than costs are undertaken
- before equilibrium

No trade where costs exceed benefits are undertaken
- after equilibrium

The combined area of consumer and producer surplus

30
Q

efficient

A

no excess supply or excess demand

31
Q

excess supply

A

quantity supplied > quantity demanded
to fix:
lower price and lower supply to go to equilibrium

32
Q

excess demand

A

quantity demanded > quantity supplied
To fix: supply more and increase price

33
Q

changes in demand to equilibrium

A

Demand changes:
Price - movies in the same direction
Quantity - movies in the same direction
Demand increases, pierce and quantity increases

34
Q

changes in supply to equilibrium

A

Supply changes:
Price- moves in opposite direction
Quantity- moves in the same direction
Supply increases, price decreases, quantity increases

35
Q

change to both demand and supply

A

Procedure for solving double shift questions:
Take it one statement at a time and ask yourself:
Does this affect supply or demand
Does it make it go up or down
What happens to price and quantity
Repeat steps a, b, and c for the 2nd statement
Add the effects together

  • example on notes
36
Q

invisible hand principle

A

The tendency for people, while pursuing their own interests, to promote the economic well-being of society

  1. prices communicate information
  2. prices coordinate the actions of market participants and motivate economics players