Microeconomics Flashcards
Demand
Consumer willingness to buy goods/services
Law of demand
Price ↑, demand ↓ (vice versa)
Demand Schedule/Curve
Table/graph showing quantity demanded at different prices.
Elasticity of Demand
How much demand responds to price changes.
Elastic Demand
large response (luxury goods)
Inelastic Demand
Small response (necessities)
Supply
producer willingness to sell goods/services
Law of supply
Price ↑, supply ↑ (vise versa)
Supply Curve Shifters
Changes in input prices, technology, taxes, expectations, number of sellers.
Equilibrium Price
Price where supply = demand.
Equilibrium Quantity
Quantity exchanged at equilibrium price.
Surplus
Excess supply (price too high).
Shortage
Excess demand (price too low).
Disequilibrium
Market imbalance
Economic Functions of Government (5)
Maintain Competition: Prevent monopolies.
Public Goods: Non-excludable & non-rival (ex: streetlights).
Externalities: Side effects of production/consumption (pollution).
Redistribute Income: Welfare, progressive taxation.
Intellectual Property: Patents, copyrights, trademarks.
Perfect Competition
many firms, no market power
monopolistic competition
many firms, product differentiation
oligopoly
few dominant firms
monopoly
one firm dominant
collusion
firms cooperate to set prices
predatory pricing
setting prices low to eliminate competition
Market failures (5)
Lack of Competition: Monopolies, oligopolies.
Inadequate Information: Consumers lack knowledge.
Resource Immobility: Workers can’t relocate.
Too Few Public Goods: Free riders don’t pay.
Externalities: Pollution, secondhand smoke.
