economics Flashcards
What is demand in economics?
The desire to buy a good or service and the ability to pay for it.
What is the relationship between price and quantity demanded?
They have an inverse relationship; as price goes down, quantity demanded goes up.
What is the difference between a change in quantity demanded and a change in demand?
A change in quantity demanded is due to a change in price, while a change in demand is due to other factors that prompt consumers to buy different amounts at every price.
How can expectations about the future affect demand?
Expectations can prompt consumers to buy sooner or later based on anticipated price changes.
What is the difference between elastic and inelastic demand?
Elastic demand is price sensitive, while inelastic demand is not strongly affected by price changes.
What are two methods to measure elasticity of demand?
Calculate the percentage change in quantity demanded and price, or use a total revenue table.
What defines a producer?
Someone who is willing and able to supply products.
What is the relationship between price and quantity supplied?
They change in the same direction; as price increases, quantity supplied increases, and vice versa.
What are the three stages of production?
- Increasing returns (marginal product increases)
- Diminishing returns (marginal product decreases)
- Negative returns (marginal product is negative)
How is profit calculated?
Profit is total revenue minus total cost.
What is the difference between a change in quantity supplied and a change in supply?
A change in quantity supplied is a movement along the supply curve due to price change, while a change in supply is a shift of the curve due to other factors.
How do input costs affect supply?
Increased input costs decrease supply, while decreased input costs increase supply.
What is the difference between elastic and inelastic supply?
Elastic supply means quantity supplied changes more than price, while inelastic supply means quantity supplied changes less than price.
How do you measure elasticity of supply?
Divide the percentage change in quantity supplied by the percentage change in price.
What does market equilibrium show?
It shows that the interaction of producers and consumers drives the price to where quantity supplied equals quantity demanded.
What happens when quantity supplied and quantity demanded are unequal?
It results in either a surplus or a shortage.
Who determines the price in a market?
Neither producers nor consumers alone; it is the interaction of supply and demand that determines price.
What signal do rising prices send to producers?
Rising prices signal producers to enter the market, as higher prices can increase revenue and profits.
What is a surplus?
A situation where quantity supplied exceeds quantity demanded.
Why do producers want to sell rationed goods at higher prices?
To make more money, while consumers want to get a greater quantity even if they have to pay more.
What does the level of competition determine in a market?
It determines the market structure.
Why are real markets not perfectly competitive?
Because they usually lack one or more characteristics of perfect competition, such as having few sellers or nonstandardized products.
How can a firm limit supply?
By controlling production levels or using other strategies to restrict availability.
What are the key differences between perfect competition and monopoly?
- Number of sellers (one vs. several)
- Control over prices (none vs. significant)
- Barriers to entry (restricted vs. free)
Why does product differentiation give a firm limited control over price?
Because it makes the product unique, allowing the firm to charge a premium without losing all customers.
Why do firms in an oligopoly consider each other’s actions?
Because there are few firms, and each one’s actions significantly affect the others.
What is a key consideration in evaluating a merger?
Whether the merger will decrease competition or make it harder for new firms to enter the market.
Why does deregulation often lead to lower prices?
Because it fosters efficiency and increases competition, leading companies to differentiate and lower prices.
