L1 Intro And Supply And Demand Flashcards
Scarcity
Unlimited wants with limited resources
Trade offs
- Which goods and services to produce (if one good is produced, another must be produced less)
- How to produce (produce given level of output, firm must use more or less of another input)
- Who gets the goods and services (more goods that someone gets, someone else cannot get)
- Growth vs environment
Opportunity cost
Value of next best alternative foregone
Market
Exchange mechanism that allows buyers to trade with sellers
Free market
No government intervention
Property rights
Protects properties and encourages entrepreneurs
Positive economics
Testable hypothesis about cause and effect
Normative economics
Conclusion as to whether something is good or bad
Value judgement
Quantity demanded
Amount of a good that consumers are willing to buy at given price, holding constant the other factors that influence purchases
Demand curve
Quantity demanded at each possible price, holding constant the other factors that influence purchases
Law of demand
Consumers demand more of a good the lower its price, holding constant all other factors that influence consumption
Veblen good
Price goes up, demand goes up as it is a luxury good
Real income equation
Nominal income / price
Substitute
Goods and services consumed instead of another good or service
Complement
Goods and services jointly consumed with another good or service
Equilibrium
Situation in which no one wants to change his or her behaviour
Equilibrium price
Price at which consumers can buy as much as they want and sellers can sell as much as they want
Equilibrium quantity
Quantity bought and sold at the equilibrium price
Disequilibrium
Quantity demanded is not equal to quantity supplied
Excess demand
Amount by which quantity demanded exceeds quantity supplied at specified price
Excess supply
Amount by which quantity supplied is greater than quantity demanded at specified price
Government policies that can shift supply and demand
Supply: licensing laws/quotas
Demand: price ceilings/floors
When S/D model is used?
Everyone is a price taker
Firms sell identical products
Everyone has full information about the price and quality of goods
Costs of trading are low
Different meanings of value?
Value in use: expresses utility of some object
Value in exchange: power of purchasing other goods
Goods with greatest value in use often have little or no value in exchange, vice versa.
