Microeconomics Flashcards
Types of markets
Factor markets (factors of production, incl. labor) and goods markets (outputs of production)
Supply
Willingness of sellers to offer given quantity of good or service for given price
Demand
Willingness and ability of consumers to purchase given amount of good or service for given price
Causes of shifts in supply/demand and along curves
Changes in price cause shift along curve. Change in any other variable causes change in supply/demand.
Process of aggregating demand and supply curves
Multiply functions by number of buyers/sellers
Equilibrium
Condition in which quantity willingly offered for sale by sellers at given price is equal to quantity demanded by buyers at same price.
How equilibrium achieved
Market mechanism - excess supply causes price to fall, excess demand causes price to rise
Stable vs. unstable equilibria
Stable - whenever price disturbed from equilibrium, price tends to converge back
Unstable - price will rise or decline away from equilibrium
Calculate inverse demand and supply functions
Inverse functions are rearranged solving for price.
Calculate excess demand and supply
Plug price into demand and supply functions. Difference is excess supply or demand.
Describe types of auctions and calculate winning prices
Ascending price - classic
Sealed bid - good for common value items
Descending price
Consumer surplus
difference between value consumer puts on item and amount of money required to pay for it
Producer surplus
difference between total revenue sellers receive from selling a given amount of a good and total variable cost of producing that amount
Total surplus
difference between total value to buyers and total variable cost to sellers
How government intervention and regulation affect demand and supply
Taxes fall hardest on party with steepest curve
How addition/removal of market interference affects price and quantity
Price ceilings (reduce supply), price floors (reduce demand)
calculate cross-price elasticities of demand and describe factors affecting measures
percentage change in quantity demanded of X / percentage change in price of Y
Positive if goods are substitutes
Negative if goods are complements
Partial equilibrium analysis
hold exogenous variables constant and concentrate on one market
General equilibrium analysis
Look at all markets together
Deadweight loss
surplus lost by buyer/seller but not transferred to anyone
How to graph supply and demand curves
Solve equations for Price and graph
Calculate price elasticity
percentage change in quantity demanded / percentage change in price
Elasticity measurements
Inelastic = less than 1
Elastic = greater than 1
Unit elastic = 1
Income elasticity
percentage change in quantity demanded / percentage change in income
normal goods are positive
inferior goods are negative
