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ASD Senior Year > Economics Chapter 3-4 > Flashcards

Economics Chapter 3-4 Flashcards

1
Q

Demand

A

the relationship between price and the quantity demanded of a certain good or service

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1
Q

Demand is based off of two things

A
  • Need/want (same thing for economists)
  • The ability to pay
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2
Q

Price

A

What a buyer pays for a unit of the specific good or service

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3
Q

Quantity demanded

A

The total number of units of a good or service consumers are willing to purchase at a given price

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4
Q

A rise in price of a good or service almost always

A

decreases the quantity demanded of that good or service (and vice versa)

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5
Q

Law of Demand

A

The common relationship that a higher price leads to a lower quantity demanded of a certain good or service and a lower price leads to a higher quantity demanded, while all other variables are held constant

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6
Q

Demand Schedule

A

A table that shows a range of prices for a certain good or service and the quantity demanded at each price

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7
Q

Demand Curve

A

A graphic representation of the relationship between price and quantity demanded of a certain good or service, with quantity on the horizontal axis and the price on the vertical axis

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8
Q

Nearly all demand curves share the fundamental similarity that

A

they slope down from left to right.

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9
Q

Demand curves embody the law of demand:

A

As the price increases, the quantity demanded decreases, and conversely, as the price decreases, the quantity demanded increases.

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10
Q

Demand vs. Quantity Demanded

A

Demand: The relationship between a range of prices and the quantities demanded at those prices. (curve)

Quantity Demanded: a certain point on the demand curve, or one quantity on the demand schedule. (point)

Same relationship applies to supply

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11
Q

Supply

A

The relationship between price and the quantity supplied of a certain good or service

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12
Q

A rise in price almost always leads to an _____ in the quantity supplied of that good or service

A

increase (and conversely)

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13
Q

Quantity Supplied

A

The total number of units of a good or service producers are willing to sell at a given price

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14
Q

Law of Supply

A

The common relationship that a higher price leads to a greater quantity supplied and a lower price leads to a lower quantity supplied, while all other variables are held constant

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15
Q

Supply schedule

A

A table that shows a range of prices for a good or service and the quantity supplied at each price

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16
Q

Supply curve

A

A line that shows the relationship between price and quantity supplied on a graph, with quantity supplied on the horizontal axis and price on the vertical axis

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17
Q

Why does supply go up as prices go up?

A

It encourages profit-seeking firms to take more severe actions

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18
Q

Equilibrium

A

the situation where quantity demanded is equal to the quantity supplied; the combination of price and quantity where there is no economic pressure from surpluses or shortages that would cause price or quantity to change

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19
Q

Where is the equilibrium point located on the D-S graph?

A

The point of intersection

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20
Q

Equilibrium price

A

The price where quantity demanded is equal to quantity supplied

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21
Q

Equilibrium quantity

A

The quantity at which quantity demanded and quantity supplied are equal for a certain price level

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22
Q

Where is the equilibrium in the schedule chart

A

Where the quantity demanded and quantity supplied is the same

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23
Q

Above the equilibrium point on an S-D curve is an

A

Excess supply or surplus

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24
Q

Below the equilibrium point on an S-D curve is an

A

Excess demand or shortage

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25
Q

Excess demand

A

At the existing price, the quantity demanded exceeds the quantity supplied; also called a shortage

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26
Q

Excess supply

A

At the existing price, quantity supplied exceeds the quantity demanded; also called a surplus

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27
Q

Surplus

A

At the existing price, quantity supplied exceeds the quantity demanded; also called excess supply

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28
Q

Shortage

A

At the existing price, the quantity demanded exceeds the quantity supplied; also called excess demand

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29
Q

Three things that affect demand

A
  1. Income (Can afford more things)
  2. Price of related goods (Price of Honda vs. Ford)
  3. Size or composition of population (10 kids to clothe vs 1)
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30
Q

Ceteris paribus

A

Other things being equal
Any given demand or supply curve is based on the ceteris paribus assumption that all else is held equal.

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31
Q

When does ceteris paribus apply?

A
  • when we observe how changes in price affect demand or supply
  • we examine the changes one at a time, assuming the other factors are held constant
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32
Q

Normal Good

A

A good in which the quantity demanded rises as income rises, and in which quantity demanded falls as income falls

(Ex. Luxury Cars)

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33
Q

Inferior Good

A

A good in which the quantity demanded falls as income rises, and in which quantity demanded rises and income falls

(Ex. Used Cars)

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34
Q

Things that are expected to shift demand curves

A
  • Changes in income
  • Changing tastes or preferences
  • Changes in population size or composition
  • Changes in prices of related goods
  • Changes in expectations about future prices or other factors that affect demand
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35
Q

Substitute

A

A good that can replace another to some extent, so that greater consumption of one good can mean less of the other

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36
Q

Complements

A

Goods that are often used together so that consumption of one good tends to enhance consumption of the other

Their demand curves will be directly related

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37
Q

Shift in Demand

A

When a change in some economic factor (other than price) causes a different quantity to be demanded at every price

38
Q

When a demand curve shifts, it will then intersect

A

with a given supply curve at a different equilibrium price and quantity.

39
Q

Shift in Supply

A

When a change in some economic factor (other than price) causes a different quantity to be supplied at every price

40
Q

Factors that affect supply

A
  • Changes in prices of inputs
  • Changes in natural conditions and weather
  • New production technologies
  • New government policies
41
Q

Profits

A

Difference between revenues and costs

42
Q

Factors of Production (Inputs)

A

The resources such as labor, materials, and machinery that are used to produce goods and services; also called inputs

43
Q

If a firm faces lower costs of production, while the prices for the good or service the firm produces remain unchanged, a firm’s profits

A

Go up

44
Q

When costs of production fall, a firm will tend to supply a larger quantity at any given price for its output. We can show this by the supply curve

A

shifting to the right

45
Q

What is the difference between shifts of demand or supply versus movements along a demand or supply curve?

A

A price change leads to a movement along a given supply curve. Similarly, a higher or lower price never shifts a demand curve. Instead, a price change leads to a movement along a given demand curve.

A change in the price of a good never causes the demand or supply curve for that good to shift.

46
Q

When does the government intervene the market?

A

To prevent the price of some good or service from rising “too high” or to prevent the price of some good or service from falling “too low”.

47
Q

Why is the market not free?

A

The government intervenes

48
Q

Governments can pass laws affecting market outcomes, but

A

no law can negate the economic principles.

49
Q

Price controls

A

Government laws to regulate prices instead of letting market forces determine prices

50
Q

Price Ceiling

A

A legal maximum price

51
Q

Price Floor

A

A legal minimum price

52
Q

Why are price ceilings enforced?

A

In order to keep the price of some necessary good or service affordable.

53
Q

Pros and Cons of price ceilings:

A

Pros:
- to keep prices low for those who need the product.

Cons:
- Lower quality
- Shortages may occur
- Sellers may suffer

54
Q

Best known example of price floor

A

Minimum wage

55
Q

Price floors are sometimes called “price supports,” because they

A

support a price by preventing it from falling below a certain level.

56
Q

Be able to point on a graph where price ceilings and floors are

A

Answers are in 3.4

57
Q

Efficiency

A

When it is impossible to improve the situation of one party without imposing a cost on another. In other words, the optimal amount of each good and service is produced and consumed.

58
Q

Consumer Surplus

A

The extra benefit consumers receive from buying a good or service, measured by what the individuals would have been willing to pay minus the amount that they actually paid

59
Q

Producer Surplus

A

The extra benefit producers receive from selling a good or service, measured by the price the producer actually received minus the price the producer would have been willing to accept

60
Q

Economic Surplus (Aka Total surplus or Social surplus)

A

the sum of consumer surplus and producer surplus

61
Q

Social surplus is larger at _________ than it would be at any other quantity

A

Equilibrium quantity and price

62
Q

Two changes can occur from price ceilings

A
  1. An inefficient outcome occurs and the total surplus of society is reduced. (deadweight loss)
  2. some of the producer surplus is transferred to consumers
63
Q

Deadweight Loss

A

The loss in social surplus that occurs when a market produces an inefficient quantity

64
Q

Law of Supply in Labor Markets

A

A higher price for labor leads to a higher quantity of labor supplied; a lower price leads to a lower quantity supplied.

65
Q

Measurements of quantity of labor

A

Amount of workers, number of hours worked

66
Q

Price of Labor

A

salary plus benefits (total labor compensation)

67
Q

When the price of labor is not at the equilibrium,

A

economic incentives tend to move salaries toward the equilibrium.

68
Q

Reasons for shifts in the demand curve for labor

A
  • Based on the demand of the good or service that is produced (derived demand for labor)
  • Demand for Output (more demand for good or service)
  • Education and Training
  • Technology
  • Number of companies
  • Government regulations
  • Price and Availability of other outputs
69
Q

Examples of derived demand for labor

A
  • The demand for chefs is dependent on the demand for restaurant meals.
  • The demand for pharmacists is dependent on the demand for prescription drugs.
  • The demand for attorneys is dependent on the demand for legal services.
70
Q

Education and Training Effect on Demand Curve for Labor

A

A well-trained and educated workforce causes an increase in the demand for that labor by employers. Increased levels of productivity within the workforce will cause the demand for labor to shift to the right. If the workforce is not well-trained or educated, employers will not hire from within that labor pool, since they will need to spend a significant amount of time and money training that workforce. Demand for such will shift to the left.

71
Q

Number of Companies Effect on Demand Curve for Labor

A

An increase in the number of companies producing a given product will increase the demand for labor resulting in a shift to the right. A decrease in the number of companies producing a given product will decrease the demand for labor resulting in a shift to the left.

72
Q

Government Regulations Effect on Demand Curve for Labor

A

Complying with government regulations can increase or decrease the demand for labor at any given wage. In the healthcare industry, government rules may require that nurses be hired to carry out certain medical procedures. This will increase the demand for nurses. Less-trained healthcare workers would be prohibited from carrying out these procedures, and the demand for these workers will shift to the left.

73
Q

Price and Availability of Other Inputs Effect on Demand Curve for Labor

A

Labor is not the only input into the production process. For example, a salesperson at a call center needs a telephone and a computer terminal to enter data and record sales. If prices of other inputs fall, production will become more profitable and suppliers will demand more labor to increase production. This will cause a rightward shift in the demand curve for labor. The opposite is also true. Higher prices for other inputs lower demand for labor.

74
Q

Law of Labor Supply

A

The higher the wage, the more labor is willing to work and forego leisure activities.

75
Q

Reasons for shifts in the supply curve for labor

A
  • Number of Workers
  • Required Education
  • Government Policies
76
Q

Minimum wage

A

A price floor that makes it illegal for an employer to pay employees less than a certain hourly rate.
Currently at $7.25

77
Q

Living wage

A

A political movement to push for a higher minimum wage

78
Q

Why is the current minimum wage too small?

A

If you work 40 hours a week at a minimum wage of $7.25 per hour for 50 weeks a year, your annual income is $14,500, which is less than the official U.S. government definition of what it means for a family to be in poverty.

79
Q

About ____ of hourly workers in the U.S. are paid the minimum wage. In

A

1.5%

80
Q

A typical result of such studies is that a 10% increase in the minimum wage would

A

decrease the hiring of unskilled workers by 1 to 2%,

81
Q

Even if the government increases the minimum wage by enough so that it rises slightly above the equilibrium wage and becomes binding,

A

there will be only a small excess supply gap between the quantity demanded and quantity supplied.

82
Q

Cons of raising minimum wage

A

Because of the law of demand, a higher required wage will reduce the amount of low-skill employment either in terms of employees or in terms of work hours.

A increase in pay for a lot of people may result in a smaller percentage losing their jobs

83
Q

Supplying Financial Capital

A

Savings

84
Q

Demanding Financial Capital

A

Borrowing

85
Q

In any market, the price is what

A

suppliers receive and what demanders pay.

86
Q

The simplest example of a rate of return is the

A

Interest Rate

87
Q

Interest Rate

A

the “price” of borrowing in the financial market; a rate of return on an investment

88
Q

According to the law of demand, a higher rate of return

A

will decrease the quantity demanded. (As the interest rate rises, consumers will reduce the quantity that they borrow.)

89
Q

Those who supply financial capital face two broad decisions:

A

how much to save, and how to divide up their savings among different forms of financial investments.

90
Q

Intertemporal decision making

A

Participants in financial markets must decide when they prefer to consume goods: now or in the future. (Involves decisions across time)

91
Q

Usury laws

A

Laws that impose an upper limit on the interest rate that lenders can charge

92
Q

Why are supply and demand curves important?

A

It allows you to graph and analyze any market. They can explain the existing levels of prices, wages, and rates of return.

ASD Senior Year (49 decks)

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