Market Flashcards
What does the supply curve show?
The quantity of output that sellers are willing to supply at any given price, Ceterus Paribus. (Other things held constant)
Name three factors affecting the supply curve.
- Competition amongst firms
- Cost structure
- Product homogeneity
What is a shape of the supply curve? What does this mean?
Typically upward sloping.
The higher the price a good can get, the more suppliers are willing to supply.
(Like demand curves) MArket supply curve is made up of all the individual sellers
What does a higher price indicate for suppliers?
The more suppliers are willing to supply.
What does each point along the market supply curve represent?
The quantity supplied at that price.
Define elasticity of supply.
The responsiveness of quantity supplied to change in prices.
What is the difference between elastic and inelastic supply?
- Elastic - a large response in quantity to price change
- Inelastic - a small response in quantity to price change
What is market equilibrium?
When the price at which quantities demanded and supplied are equal.
What is excess supply?
Many sellers but not many buyers.
What is excess demand?
Many buyers but not many sellers.
What does it mean for a trade to be mutually beneficial?
Both the buyer and seller must receive some form of gain or utility from the exchange.
Define consumer surplus on an individual level.
The difference between what somebody is willing to pay and what they actually pay.
What is market consumer surplus?
Combining the consumer surplus from all individuals.
Define producer surplus on an individual level.
The difference between what the seller is willing to be paid and what they actually get paid.
What is market producer surplus?
Combining the producer surplus from each producer.
What happens to buyers and sellers on the left-hand side of the equilibrium quantity?
They are active participants in the marketplace.
What is the impact of a large increase in demand with an inelastic supply curve?
Demand curve shifts right, supply curve doesn’t change; small increase in quantity, large increase in price.
What is the income effect?
The change in quantity demanded of a good resulting from a change in the consumer’s real income or purchasing power due to a price change.
What happens when the price of a good decreases in terms of demand?
Demand increases as consumers can afford more of the good.
What is the substitution effect?
Occurs when a change in the price of a good causes consumers to substitute it with a cheaper alternative.
What happens when the price of a good increases in terms of consumer behavior?
Consumers generally buy less and shift demand to a cheaper alternative.
Fill in the blank: The price of a good decreases, consumers buy more of that good as it has become relatively _______.
cheaper than alternatives.
