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Econ test 1 > Econ Test 2 > Flashcards

Econ Test 2 Flashcards

1
Q

Definition of a market

A

When and where buyers and sellers meet to negotiate prices and quantities for a particular product

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2
Q

Demand Definition

A

The whole curve. The level of desire for a product

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3
Q

Supply Definition

A

is the different quantities of good/service that sellers are willing/able produce at different prices

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4
Q

Law of Demand

A

As Price (P) of a product increases, quantity demands (QD) decreases and vice versa

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5
Q

What does it mean to say that for demand, price and quantity demand have an inverse relationship?

A

As the price goes up, the quanity demand goes down. As price goes down, quantity demand goes up

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6
Q

On a supply/demand graph, what is on the x-axis, what is on the y-axis?

A

Price is the y-axis
Quantity is the x-axis

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7
Q

Basic Demand Curve

A

It goes high on the y-axis to lower

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8
Q

What happens to the demand curve if price changes and the quantity demand changes?

A

It just moves the point on the graph.

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9
Q

What direction does the demand curve shift if demand increases or decreases?

A

It moves right if the demand increases, left if it decreases.

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10
Q

What are 5 non-price determinant that can shift demand.

A

Buyer Number
Related Good
Income
Taste/trend
Expectation

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11
Q

What is a substitute? 2 goods that can be subsitutes

A

Products that serve the same utility:
In-n-out Burger and McDonalds Hamburger
Coke and Pepsi

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12
Q

What is a complement? 2 goods that are a complement

A

2 goods that are a complement: If the demand of the complement decreases, the
-Hotdog and Hotdog bun
-Coffee and Coffee Creamer

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13
Q

What is the law of supply

A

As the price increases, the quantity producer supply increases. QS=QP, the graphs slope goes and is positive.

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14
Q

What does it mean to say that for supply, price and quantity supplied have a direct relationship.

A

Price increases, so does the quantity supply increases. the QS and QP go up eaqually.

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15
Q

What happens on a supply curve if price changes? What happens if the quantity supplied changes?

A

The point moves on the graph.

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16
Q

What is the difference between a tax and a subsidies.

A

If a company is being taxed for supplying a good. This increases the cost to make a product.
->the supply curve decreases
It is the opposite for subsidies.

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17
Q

The 6 non-price determinants

A

T-technology
I-input prices (think Factors of Production)
N-Number of Sellers (More Olive Gardens in the same vacinity
T-Taxes/Subsidies
E-Expectation
R-Related Good.

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18
Q

Definition of Equillibrium

A

It is the level on the graph where the point on the Quantity Demanded equals the Quantity Price
-The Market is the most stable at equilibrium where both buyers and sellers can agree on P and Q of a product

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19
Q

What is a Surplus?

A

More quantity supplied than quantity demanded.
->Surplus=Sellers try to increase sales by cutting price.

Look on Graph on study written sheet.

20
Q

What is a shortage?

A

When quantity demanded is greater than quantity supplied.
-Below Equilibrium
-Sellers raise prices

20
Q

What is a shortage?

A

When quantity demanded is greater than quantity supplied.
-Below Equilibrium
-Sellers raise prices

21
Q

Graph with equilibrium

A

On paper

22
Q

What will suppliers do if they have an shortage in order to get equilibrium? What will suppliers do if they have a surplus?

A

Shortage=raise price to equalibrium
Surplus=lowers prices

23
Q

Elastic good

A

Consumers will determine if they buy this good based on their prices. Change in price will make the consumers react

24
Q

Inelastic Good

A

Prices don’t matter as much to the consumer (unresponsive to price change)

25
Q

5 elastic goods example

A

Restaurant meals
Car (if you have time to get a car)
Fresh Tomatoes
Foreign Travel, long run
Airline travel long un

26
Q

5 Inelastic products

A

Salt
Gasoline (short and long run)
Insoline
tooth picks
Legal services short run

27
Q

What are the 4 factors/criteria which affect demand elasticity

A

Substitutes:many subsitutes=elastic
Portion of income: Large portion of income= elastic
Small portion of income=inelatic
Luxury/Necesity
Time

28
Q

What do different potential coefficients tell us about a product’s elasticity?

A

Coefficient is between 0 and 1
-Inelastic Demand
—Consumers are not sensitive to price
Coefficient is 1
-Unit elastic Demand
—–Demand changes in the same proportion the price did
Coefficient is Greater than 1
——Elastic demand
-Consumers are sensitive to price

29
Q

What is the equation for the Total Revenue Test

A

TR=Price x Quantity

Same direction=Inelastic
Oposite Direction: TR(up) Price(down)= Elastic
Stays the same:Unit elastic

30
Q

What are fixed costs?

A

Costs for fixed resources that DON’T change with the amount produced.
-Factory Rent, Manager Salaries

31
Q

What are variable costs?

A

costs for variable resources that do change based on how much is produced when more or less is made.

32
Q

How do you find the economic profit for a business

A

How to find the economic cost if you add the variable cost and fixed cost together.

33
Q

What is the law of Marginal Diminishing Utility to Marginal Costs

A

Businesses are going to stop producing a certain amount and having a certain amount of people when its going to hurt. Why make a good and not gain. You are going to stop a the bottom of the curve.The law of diminishing marginal utility states that all else equal, as consumption increases, the marginal utility derived from each additional unit declines.

34
Q

What is a price ceiling

A

A price ceiling is the maximum price sellers are allowed to charge.
—Rent Control is a good example
Price ceilings are for consumers, are placed below equilibrium, and they cause shortages

35
Q

what is a price floor (examples)

A

The minimum amount sellers are allowed to charge.
-They are for the seller, they cause surpluses.
-government does it to help producers
-above equilibrium
-Minimum wage is a good example

36
Q

Pros and cons of price ceilings and floors

A

Pros
-Price ceilings help keep prices low for the consumers
-Price floors help suppliers make more money
Cons
-Causes persistant shortages/surpluse
-Resources aren’t allocated efficiently
-Can cause Illegal(floor) and black market (ceilings) activity
-Special interest groups push for price controls for political reasons

37
Q

Monopoly

A

-a market dominated by a single firm/seller (Rockefeller)
-No actual competition for the one firm in the market
-this benefits the seller

38
Q

Perfect Competition (theoretical)

A

-Large number of firms all produce and sell the same product for the same preice
-Requirements
–Many buyers and sellers
–Sellers offer identical products
–Sellers are able to enter and exit the Markey freely very low barries

39
Q

Monopolistic Competition

A

-Relatively large number of sellers
-Differentiated products
-Some control over price
-Easy entry and exit (low barrier)
-Non price competition

40
Q

Oligopoly

A

-A few large producers (less than 10)
-Identical or differentiated products
-High barriers to entry
-Mutual Independence
—Firms use strategic Interdependence
—–Pepsi/Coke

41
Q

Game theory

A

The study of how people behave in strategic situations

42
Q

Prisoners dilemma

A

If one business goes lower in price, either the other firm goes lower or stays. The risk is that the other company will make more money so they have to raise their prices. If they both raise their prices, then they both get more money. They can’t discuss it though

43
Q

Why do you think that Tobacco and Coffee are fairly inelastic

A

They have addictive qualities that make them a necessity

44
Q

Who benefits from an Oligopoly

A

Consumers can even benefit from lower prices and better quality goods and services in this situation. The market itself will still lack competition, but the behavior of the organizations can still be highly competitive

45
Q

Who benefits from Monopolistic Competition

A

Consumers benefit because of differentiated products

Econ test 1 (2 decks)

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