LOS 13-ECON Flashcards
Types of Market
1) Factors of production (factor markets) 2) Services and finished goods (goods market or product market)
Firms buyer/Seller
In general, firms are buyers in factor markets and sellers in product markets
Intermediate Goods
Goods which are used in the production of final goods
Capital Market
Where Firms raise money for investments by selling debt (borrowing) or seeling equities (claims to ownership) as well as markets where these debt and equity claims are subsequently traded
Demand function
QD = f(Price of Good X, Income, Price of Good Y)
Complement
An increase in the price of X will lead to decrease in price of Y (X and Y has inverse or negative relationship)
Substitute
An increase in the price of X will lead to increase in price of Y (X and Y has direct or positive relationship)
Law of Demand
The quantity demanded typically increases at lower prices; downward sloping curver
Supply function
Qs = f(Selling Price, Cost of Production)
Cost of Production
f(technology, cost of labor, cost of other inputs in production)
Law of Supply
Greater quantity is supplied at higher prices is referred to as the law of supply; upward sloping curve
Movement along the curve
when increase (decrease) in market price leads to 1) decrease (increase) in quantity demanded or 2) increase (decrease) in quantity supplied
Shift of the curve (1)
When change occurs in one of the independent variables other than price
Shift of the curve (2)
An increase (decrease) in income or the price of a substitute will increase (decrease) demand, while an increase (decrease) in the price of a complement will decrease (increase) demand
Shift of the curve (3)
Increase in demand (shift right-P?,Q?) or supply (shift right-P?,Q?); Decrease in demand (shift right-P?,Q?) or supply (shift right-P?,Q?)
Slope of the supply curve
Co-efficient of independent variable (QS). Ex: PS = (Coeff*QS) + Y intercept
Equilibrium price and Equilibrium quantity
Price at which quantity supplied equals quantity demanded; the point at which supply and demand curve intersects
Movements towards equilibrium (Price decline)
If the price is above its equilibrium level, the quantity willingly supplied exceeds the quantity consumers are willing to purchase, and we have excess supply
Movements towards equilibrium (Price decline)
Excess supply drives price towards equilibirum (price decline); suppliers reduces production in response to declining prices
Movements towards equilibrium (Price increase)
If the price is below its equilibrium level, the quantity demanded at that price exceeds the quantity supplied, and we have excess demand
Movements towards equilibrium (Price increase)
Excess demand drives price towards equilibirum (price increase); suppliers increase production in response to increasing prices
