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Micro Economics > Midterm #1 > Flashcards

Midterm #1 Flashcards

(75 cards)

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1
Q

Competitive Market

A

A market where there are many buyers/sellers so no individual person can influence price

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2
Q

Relative Price

A

ratio of its money price to the money price of the next best alternative

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3
Q

Quantity Demand

A

The amount of a goods/services a consumer is planning to buy during a certain time period at a certain price

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4
Q

How a demand graph works

A

Higher price = small quantity demanded

Lower price = larger quantity demanded

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5
Q

2 causes of change in quantity demanded

A
  1. Substitution effect

2. Income effect

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6
Q

Substitution Effect

A

When prices of goods/services rise relative to other prices, people will seek a substitution. Therefore quantity demanded goes down.

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7
Q

Income Effect

A

When the price of a good/service rises relative to income. This could mean people can’t afford what they previously could which can lower quantity demanded

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8
Q

Demand Vs. Quantity Demanded

A

Demand;

  • refers to the ENTIRE graph
  • the relationship between the price of a good and the amount of product that consumers are willing to get at each price
  • Change in demand SHIFTS graph

Quantity Demanded;

  • refers to one particular POINT on the Demand curve
  • change in quantity demanded does NOT SHIFT graph
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9
Q

6 factors that change Demand

A
  1. prices of related goods
  2. expected future prices
  3. income
  4. expected future income and credit
  5. population
  6. preferences
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10
Q

Substitute

A

A good that can be used to replace another good

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11
Q

Complement

A

A good used in conjunction with another

Ex. Peanut butter complement could be jam

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12
Q

What happens if the price of a substitute for energy bar decreases?

A

This could decrease the demand of the energy bar

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13
Q

What happens if the price of a complement for energy bar decreases?

A

This could increase the demand of the energy bar

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14
Q

Expected Future Prices

A

Changes in expected future prices affects the current demand shifting the whole graph. Increased expected future price means people want to buy now before it goes up.

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15
Q

Normal Good + Example

A

A normal good is something where the quantity demanded increases with an increase of income
Ex.) Whole wheat pasta

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16
Q

Inferior Good + Example

A

An inferior good is something where the quantity demanded decreases with an increase of income
Ex.) Canned food

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17
Q

Quantity Supplied

A

the amount that a producers plan to sell during a given time period at a particular price

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18
Q

How a supply graph works

A

Higher price = Higher quantity supplied

Lower price = Lower quantity supplied

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19
Q

Supply

A
  • refers to the entire relationship between the quantity supplied and the price of a good
  • change in supply SHIFTS the graph
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20
Q

Minimum Supply Price

A

the lowest amount they are willing to sell a good is marginal cost

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21
Q

6 Main factors that change supply

A
  1. The prices of factors of production
  2. The prices of related goods produced
  3. Expected future prices
  4. The number of suppliers
  5. Technology
  6. State of nature
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22
Q

What happens if price of production increases

A

The minimum price that a supplier is willing to accept increases, therefore DECREASES supply

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23
Q

What happens if the price of a substitute falls

A

The supply would INCREASE

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24
Q

What happens if the price of a complement in production increases

A

The supply would INCREASE

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25
What happens to supply if the expected future price falls
The supply would INCREASE
26
What happens if more suppliers come into the picture
The more suppliers means more of the product, therefore supply would INCREASE
27
How does advancement in technology affect supply
Advancement in technology decreases production cost of producing existing products, therefore INCREASES supply
28
How can State of Nature affect the supply
Natural disasters cause a DECREASE in supply
29
Equilibrium Price
point where quantity demanded = quantity supplied
30
Production Possibilities Frontier (PPF)
Boundary between those combinations of good/services that can be produced and those that cannot.
31
Marginal Cost
Is the opportunity cost of producing one more unit of a good/service
32
How are Preferences described
Described through someone's marginal benefit and marginal benefit curve
33
Marginal Benefit and how is it measured
The benefit received from consuming one more unit. Measured by the amount that a person is willing to pay for an additional unit of a good/service
34
Economic Growth
Expansion of production possibilities and increase in the standard of living
35
2 Factors that influence economic growth
1. Technological change | 2. Capital accumulation
36
Technological change
The development of new goods and better ways of producing goods/services
37
Capital Accumulation
Growth of capital resources, which includes human capital
38
Comparative Advantage
Something a person has if they can perform the activity at a lower opportunity cost
39
Absolute Advantage
If a person is more productive than others
40
Economics
Study of the choices people make as they cope with scarcity and the incentives that influence and reconcile those choices
41
Micro vs. Macro
Micro: smaller scale, questioning choices of individuals and businesses Macro: larger scale, questioning performance of the national and global economics
42
Price Elasticity of Demand and Formula
How the quantity demanded of a good responds to a change in its price in ceteris peribs. [delta Q / Q average] / [delta P / P average]
43
Perfectly Inelastic Demand
When the quantity demanded doesn't change when the price changes. Makes the price elasticity of demand = 0
44
Elastic, Inelastic, and Unit Elastic relation with revenue
``` Elastic = price cut increases total revenue Inelastic = price cut decreases total revenue Unit-Elastic = price cut does not change the total revenue ```
45
3 things the Elasticity of Demand depends on and 1 reason for each
1. Closeness of substitutes - the closer the substitute, the more elastic the demand is for the good/service 2. Proportion of income spent on the good - bigger proportion of income spent on a good, the larger the elasticity of demand is 3. Time elapsed since a price change - More time consumers have to adjust to a price change, the more elastic the demand is
46
Cross Elasticity of Demand and Formula
How a goods demand responds to a change in price of a substitute or complement while ceteris peribus [delta Q / Q average] / [delta Psubstitute / P average substitute]
47
Income Elasticity of Demand and Formula
How quantity demanded responds to a change in income | [delta Qdemanded / Qdemanded average] / [delta I / I average]
48
Elasticity of Supply and Formula
How quantity supply responds to a change in price of a good | [delta Qsupplied / Qsupplied average] / [delta P / P average]
49
Resource Substitution Possibilities
the easier it is to substitute among the resources used for production, the greater elasticity of supply
50
Time Frame for supply decision
More time that passes after a price change, the greater is the elasticity of supply
51
8 Scarce resources allocation forms
1. Market price 2. Command 3. Majority rule 4. Contest 5. First-come, first-serve 6. Lottery 7. Personal characteristics 8. Force
52
Market Price
- most scarce resources that you supply get allocated by market price - For most goods/services, the market turns out to do a good job
53
Command & Best When...
- allocates resources by the order of someone in authority | - Works well in organizations with clear lines of authority
54
Majority Rule & Best When...
- Allocates resources in the way the majority of voters choose - Works well when the decision affects lots of people and self-interest must be suppressed to use resources efficiently
55
Contest & Best When...
- Allocates to winner - Ex.) Oscars, Sport events - Best when the efforts of the "players" are hard to monitor and reward directly
56
First-come, first-serve & Best When...
- Allocates to those who are first in line - Ex.) casual restaurants, supermarket checkouts, buffets - Best when scarce resources can serve just one person at a time in a sequence
57
Lottery & Best When...
- Allocates to those with the winning number - Ex.) draw, lucky cards, or any kind of lucky situation - Best when there is no effective way to distinguish among potential users of a scarce resource
58
Personal Characteristics
- Allocates to those with the "right" characteristics - Ex.) People choose marriage partners on the basis of person characteristics - Can sometimes be blurred in workforce with discrimination
59
Force & Best When...
- Allocating by force is one through taking or assigning without appropriate approval - Ex.) wars and stealing - Best for the state to transfer wealth from the rich to the poor and establish the legal framework in which voluntary exchange can take place in markets
60
Marginal Benefit
- the value of one more unit of a good/service | - marginal benefit curve = demand curve
61
Consumer Surplus and Formula
- area under the demand curve and above the price paid [marginal benefit - price] / [quantity bought]
62
Marginal Cost
- the cost of one more unit of a good/service | - marginal cost curve = supply curve
63
Producer Surplus
- the area below market price and above the supply curve
64
The Invisible Hand
the idea implied that competitive markets send resources to their highest valued use in society
65
Market Failure
when markets don't achieve an efficient outcome
66
Deadweight Loss
The amount that could have been produced to create maximum capitalization
67
5 sources of Market Failure
1. Price and Quantity regulations 2. Taxes and subsidies 3. Monopoly 4. Externalities 5. Public Goods
68
Price and Quantity Regulations
Price regulation: minimum wage law, rent control | Quantity regulation: hunting, fishing
69
Taxes and Subsidies
Taxes: increase prices paid by buyers and lower prices received by sellers Subsidies: lower the prices paid by buyers and increase the prices received by sellers
70
Monopoly
- is a firm that has sole provider of a good/service | - produces too little and underproduction results
71
Externalities
Is a cost or benefit that affects someone other than the seller/buyer of a good - Ex.) an electric utility creates an external cost by burning coal that creates pollution and acid rain
72
Public Goods
Benefits everyone and no one can be excluded from its benefits
73
Utilitarianism
The principle that states we should strive to achieve "the greatest happiness for the greatest number"
74
When is Market Equilibrium reached
When "demand = supply"
75
Efficiency
When "marginal social benefit = marginal social cost"

Micro Economics (1 decks)

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