slide 3 Flashcards
define market
any arrangement where buys and sellers do business with each other
define competitive market
market that has many buyers and sellers
define demand and how it can be represented
demand can be shown in a table (demand schedule) or a graph (demand curve)
demand is the entire relationship between the price of good and the quantity demanded of the good
define quantity demanded
the amount of goods a consumer is willing to buy at a specific price
what is the law of demand
and what influences the law of demand
as the price falls the quantity demand rises
as prices rise the quantity demand falls
- common sense, if things are more expensive i want less
- consumption is subject to diminishing marginal benefit
- income and substitution effects
what is income effect
what is substitution effect
income effect: prices increase in costs but income is fixed, so I can no longer afford it. The quantity demanded decreases.
substitution effect: as prices rise, consumers will seek out an alternative, so the demand for that good will decrease
true or false: the demand curve is the exact same thing as the marginal benefit curve
true, the willingness to pay is the marginal benefit
what will cause a curve to shift, and how do you determine where the curve will shift to
when something other than price influences buying plans
if there is an increase, shift right
if there is a decrease, shift left
what are some main factors that change demand
- change in price of substitute
- change in price of compliment
- expected future prices
- change in income
-expected future income and credit - population
-preferences
what is the difference between substitute and compliment
substitute: a good that can replace another good
compliment: goods that are used in conjunction with another
what’s the difference between normal and inferior good
normal good: demand increased as income increased
inferior good: demand decreased as income increased
what will cause a shift on the original curve, what will cause a whole new curve
if price is affected we move on the original curve, if anything but price happens we will create a new curve
define demand and how it can be represented
supply can be shown in a table or a graph
supply is the entire relationship between quantity supplied and the price of the good
define quantity demanded
the amount
that producers plan to sell at a particular price during a particular time period
what is the law of supply
as the price rises, the quantity supplied rises. And as the price falls, the quantity supplied falls
producers are only willing to sell goods when ____?
or what is the lowest possible price
when they can at least cover their marginal cost of production
true or false: As the quantity produced increases, marginal cost increases
true
what are some main factors that change supply
- prices of production factors
-prices of a substitute in production (the supply will increase if the price of substitute decreases, just use sub to make product instead) - goods are compliments in productions (supply of good increases if price of compliment goes up)
- expected future prices
- number of suppliers (more suppliers = more supply)
- technology (advanced = make more)
- state of nature (in draught = no crops)
what is equillibrium
when the price balances the plans of buyers and sellers, when supply = demands
true or false: price is not a regulator of supply and demand
false
define surplus and shortage
surplus: quantity supplied exceeds the quantity demanded
shortage: quantity demanded exceeds the quantity supplied
what happens at prices above and below the equilibrium price
above: surplus & prices will decrease
below: shortage & prices will increase
The competitive market generates both productive efficiency and allocative efficiency
what does this mean
productive efficiency:
lowest-cost production
allocative efficiency:
producing the right amount of the product relative to other products
