Section2 Flashcards
1
Q
What is a Market?
A
- A market is a collection of buyers and sellers whose interactions determine the price of a good.
- Supply and Demand drive this process.
2
Q
Types of Goods
A
- Search goods: Qualities can be assessed before purchase.
- Experience goods: Qualities discovered after purchase.
- Credence goods: Qualities cannot be evaluated even after purchase.
3
Q
Types of Markets
A
- Competitive market: Many buyers/sellers, no price control.
- Oligopoly: Few sellers, price influence possible.
- Monopoly: One seller controls price, barrier to entry.
4
Q
Law of Demand
A
Quantity demanded falls when the price rises, assuming all else is equal.
5
Q
Demand Function
A
- Q = a – bP.
– Q: quantity demanded
– P: price
– b: slope
6
Q
Inverse Demand Function
A
- P = (a / b) – (1 / b) × Q
- P as price and Q as quantity
7
Q
Market Demand vs. Individual Demand
A
Market demand is the sum of all individual demands for a particular good.
8
Q
Supply Definition
A
- Quantity supplied is the amount that sellers are willing and able to sell at a given price.
- Law of Supply: quantity rises when price rises.
9
Q
Market Supply vs. Individual Supply
A
Market supply is the sum of all individual supplies for all sellers of a good.
10
Q
Equilibrium Price
A
The price that balances quantity supplied and quantity demanded, where supply and demand curves intersect.
11
Q
Price Ceiling
A
- Non-binding if above equilibrium price
- Binding if below, leading to a shortage
12
Q
Price Floor
A
- Non-binding if below equilibrium price
- Binding if above, leading to a surplus
13
Q
Elasticity
A
Elasticity measures the response of quantity demanded or supplied to changes in price or other market conditions.
14
Q
Price Elasticity of Demand
A
- Measures how quantity demanded responds to price changes.
- Elastic if greater than 1
- Inelastic if less than 1.
15
Q
Price Elasticity of Supply
A
- Measures the responsiveness of quantity supplied to price changes.
- Elastic: large response
- Inelastic: small response
