ECON ch 3- EXAM#1 Flashcards
in a perfect competitive market everyone is
a price taker
what type of market sells a homogenous good with many buyers and sellers, and with no market power
competitive market
the markets in which goods and services are exchanged
output markets (G&S markets)
the markets in which resources (labor, capital, land) are exchanged
- households
- entrepreneurships
input markets (factor markets)
the market in which households supply work for wages to firms that demand labor
labor market (input)
the market in which households supply their savings, for interest or for future profits, to firms that demand funds to buy capital goods
the financial- capital market (input)
households play 2 roles
- consuming units (buyers) in the markets for outputs
2. supplying units in the market for inputs (labor)
organizations that transforms resources (inputs) into goods and services (outputs)
business firms
firms play 2 roles
- consuming units in the market for inputs
2. supplying units in the market for outputs
demand shifters (5)
- income
- population (# of buyers)
- preferences
- prices of compliments/substitutes
- expectations
law of demand
the theory according to which the QD of a good falls when the P of a good rises
shifters are also known as
non-price determinants
“other things equal” =
= “ceteris paribus”
a table showing the relationship between the price and the QD of the analyzed goods (lattes)
demand schedule
are movements along the demand curve caused by a change in the price of the analyzed good.
changes in what
changes in the QD
a shift of the demand curve caused by changes in shifters (income, price of related goods, expectations)
changes in what
changes in demand
demand curve shifters
-shift to right
increases
demand curve shifters
-shift to the left
decreases
normal goods
are goods for which demand increases (right shift) when income goes up (and for which demand decreases when income goes down)
inferior goods
are goods for which demand decreases (left shift) when income goes up (and for which demand increases when income goes up)
demand for normal increases
income increases
demand for inferiors decreases
income increases
substitutes: when price increases, demand
demand increases
compliments: when price increases, demand
demand decreases
anything that causes a shift in tastes toward a good will increase demand for that good and shifts its demand curve to the right
preferences
affect consumers` buying decisions
expectations
price causes
price causes a movement along the same demand (only QD changes)
shifts the demand curve (5)
income, population, price of related GS, tastes, expectations
determinants of supply curve (5)
- price of the analyzed GS
- the cost of producing the good, which in turn, depends on price of inputs
- technology
- # of firms producing and selling the GS
- expectations
law of supply
the theory according to which the QS of a good increases when the price of the good rises
an increase in the # of sellers increases the QS at each price, shifts the supply curve to
to the right
the tendency in a free market for the price to change until the market clears (reaches equilibrium)
the market mechanism
QS=QD
equilibrium
two types of market disequilibria
- excess demand (shortage)
2. excess supply (surplus)
when QS is greater than QD
surplus
when QD is greater than QS
shortage
a change in demand:
price goes up
demand increases
- quantity goes up
- price goes up
a change in supply:
technology improves
produce more, so P goes down and Q goes up
demand decreases
P and Q decreases (shift left)
supply increases
P decreases and Q increases (shift right)
demand increases
P and Q increases (shift right)
supply decreases
P increases and Q decreases (shift left)
demand decreases and supply increases
P decreases and Q either
demand increases and supply decreases
P increases and Q either
