exam 1 Flashcards
fundamentally, economics deals with…
scarcity
efficiency means that…
society is getting the most it can from its scarce recources
opportunity cost
the highest benefit obtained from opportunities forgone
quantity supplied
amount of a good sellers are willing and able to sell at a given price
supply
willingness of sellers to supply different quantities of a good at different prices
supply curve
shows the quantity supplied by sellers at different prices
law of supply
as price increases, quantity supplied increases -
AKA an increase in price makes production more profitable which raises the incentive to sell more goods
what is happening when the supply curve shifts right?
the supply/good is higher despite the price not changing
when do shifts occur of the supply curve?
if something makes selling more profitable at all prices or increases the number of units produced
4 reasons a supply curve can shift right
- the number of producers rises
- technological advances reduce cost of production
- input prices decrease
- future price decreases
technology advancement makes phones easier to produce - supply or demand shift? what direction?
supply shifts right (technological advancement)
cupcakes are found to cause liver cancer - supply or demand shift? what direction?
demand shifts left (change in taste)
in the market of cheesecake, a cheesecake factory burns down - supply or demand shift? what direction?
supply shifts left (fewer producers)
in the market of sushi, what happens if pasta becomes more expensive - supply or demand shift? what direction?
demand shifts right (price of substitute increases)
the price of tea rises, what happens to the market of coffee?
demand of coffee increases (substitutes)
gram crackers become cheaper, what happens to the market of marshmallows?
demand of marshmallows increases (compliments)
movies become more expensive, what happens to the market of popcorn?
demand of popcorn decreases (compliments)
PS4s are on sale, what happens to the market of xboxes?
demand of xbox decreases (substitutes)
equilibrium
where supply and demand curves intersect,
quantity demand = quantity supply
market clearing
people can purchase all they want and sellers sell all they are willing and able at that price
surplus
if the price is above equilibrium, the quantity supplied is larger than the quantity demanded
what do sellers do when there is a surplus?
sellers lower prices to sell their surplus of supply, the price falls until equilibrium is reached
shortage
if the price is below equilibrium, the quantity demanded is larger than the quantity supplied
what do sellers do when there is a shortage?
sellers raise prices until equilibrium is reached where quantity supplied equals quantity demanded
how do you find the size of a surplus/shortage?
find the difference between quantity demanded and quantity supplied (is always a positive number)
the shift of ONE curve
price falls, quantity demanded increases
what happens in the market of hamburgers if income increases? (hamburgers are a normal good)
demand curve shifts right, price increases and quantity increases
what happens to the price and quantity in the market of sushi if one of two sushi places closes?
price increases, quantity decreases
if price and quantity decrease, what is happening?
income is rising and it is an inferior good
what happens to the P and Q in the market of wine if another producer enters the market and tastes change from preferring champagne to preferring wine? (size of change is not given)
quantity increases and the price is ambiguous of wine
what happens to the P and Q in the market of wine if another small producer enters the market and tastes change from preferring champagne to preferring wine? (size of changes given)
quantity and price increase of wine
absolute advantage
who has the higher productivity
comparative advantage
who has a lower opportunity cost
taxes net of transfers (T) calculation
T = taxes - transfer payments
