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ECON 201 > Review 2 Supply, Demand, and the Market Process > Flashcards

Review 2 Supply, Demand, and the Market Process Flashcards

1
Q

Effect of a price floor

A

surpluses

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2
Q

Effect of an increase in demand on price and quantity

A

both increase

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3
Q

producer surplus

A

The difference between the price that suppliers actually receive and the minimum price they would be willing to accept. It measures the net gains to producers and resource suppliers from market exchange. It is not the same as profit.

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4
Q

draw a supply curve

A
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5
Q

derived demand

A

The demand for a resource; it stems from the demand of the final good the resource helps produce.

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6
Q

draw a demand curve

A
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7
Q

market

A

An abstract concept encompassing the forces of demand and supply and the interaction of buyers and seller with potential for exchange to occur.

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8
Q

Effect of an increase in supply on price and quantity

A

price decreases, quantity increases

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9
Q

Substitutes

A

Products that serve similar purposes. An increase in the price of one will cause an increase in demand for the other (examples are hamburgers and tacos, butter and margarine, Chevrolets and Fords).

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10
Q

profit

A

An excess of sales revenue relative to the opportunity cost of production. The cost component includes the opportunity cost of all resources, including those owned by the firm. Therefore, profit accrues only when the value of the good produced is greater than the value of the resources used for its production.

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11
Q

invisible hand principle

A

The tendency of market prices to direct individuals pursuing their own interests to engage in activities promoting the economic well-being of society.

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12
Q

Price floor

A

a legally established minimum price buyers must pay for a good or resource.

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13
Q

Effect of an decrease in demand on price and quantity

A

both decrease

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14
Q

Who determines the lowest possible price of any voluntary exchange?

A

the seller

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15
Q

What are some factors that would tend to increase the supply of a good.

A

A decrease in the cost of producing the good
An increase in the number of sellers
An improvement in the technology to produce the good
Seller expect a lower price in the future

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16
Q

supply comes from

A

sellers

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17
Q

Law of supply

A

A principle that states there is a direct relationship between the price of a good and the quantity of it producers are willing to supply. As the price of a good increases, producers will wish to supply more of it. As the price decreases, producers will wish to supply less.

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18
Q

What are some factors that would increase the price of a good

A

increased production cost
increase in the price of a substitute
decrease in the price of a complement
increase in the number of buyers
increase in the income of buyers for a normal good
decrease in the income of buyers for an inferior good
consumers begin to expect higher prices in the future
sellers begin to expect higher prices in the future

19
Q

normal good

A

A good that has a positive income elasticity, so that as consumer income rises, demand for the good rises, too.

20
Q

Price ceiling

A

A legally established maximum price sellers can charge for a good or resource.

21
Q

What are the 3 questions of economics

A

what to produce, how to produce it, and who to produce it for

22
Q

consumer surplus

A

The difference between the maximum price consumers are willing to pay and the price they actually pay. It is the net gain derived by the buyers of a good.

23
Q

What are some factors that will cause an increase in demand?

A

the price of a complementary good decreases
the price of a substitute good increases
number of buyers increases
income of buyers increases for a normal good
income of buyers decreases for an inferior good
speculation on higher prices in the future

24
Q

another name for excess supply

A

surplus

25
Q

Law of diminishing marginal utility

A

The basic economic principle that as the consumption of a product increases, the marginal utility derived from consuming more of it (per unit of time) will eventually decline.

26
Q

Assume that the price of oil is $5. If the equilibrium price of oil is $10, then there is a ______________ of oil.

A

shortage

27
Q

demand comes from

A

buyers

28
Q

Law of demand

A

A principle that states there is an inverse relationship between the price of a good and the quantity of it buyers are willing to purchase. As the price of the good increases, consumers will wish to purchase less of it. As the price decreases, consumers will wish to purchase more of it.

29
Q

complements

A

Products that are usually consumed jointly (for example bread and butter, hot dogs and hot dog buns). A decrease in the price of one will cause an increase in demand for the other.

30
Q

Loss

A

A deficit of sales revenue relative to the opportunity cost of production. Losses are a penalty imposed on those who produce goods even though they are valued less than the resources required for their production.

31
Q

Effect of an decrease in supply on price and quantity

A

price increases, quantity decreases

32
Q

Who determines the highest possible price of any voluntary exchange?

A

the buyer

33
Q

Inferior goods

A

A good that has a negative income elasticity, so that as consumer income rises, the demand for the good falls.

34
Q

If the total utility of have one unit of a good is 20 utils and the total utility of having two units of the same good is 25 utils, what is the marginal utility of the second unit of that good?

A

5 utils (25-20)

35
Q

excess demand causes prices to

A

increase

36
Q

entrepreneur

A

A person who introduces new products or improved technologies and decides which project to undertake. A successful entrepreneur’s actions will increase the value of resources and expand the size of the economic pie.

37
Q

another name for excess demand

A

shortage

38
Q

Demand and supply are determined by

A

something other than price

39
Q

marginal utility

A

The additional utility, or satisfaction, derived from consuming an additional unit of a good.

40
Q

Quantity demanded and quantity supplied are determined by

A

price

41
Q

excess supply causes prices to

A

decrease

42
Q

Assume that the price of oil is $20. If the equilibrium price of oil is $10, then there is a ______________ of oil.

A

surplus

43
Q

Effect of price ceiling

A

shortages

44
Q

equilibrium

A

A state in which the conflicting forces of demand and supply are in balance. When a market is in equilibrium, the decisions of consumers and produces are brought into harmony with one another, the quantity demanded will equal the quantity supplied.

ECON 201 (8 decks)

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