Supply and Demand Flashcards
What is the notation for the equilibrium?
p* for price and q* for quantity
What notation is used to signify an ambiguous change?
~ is the notation used to signify an ambiguous change. It follows the quantity/price notation of the equilibrium
If you have 1 supply shock and 1 demand shock, do you have an ambiguous or unambiguous change?
You have one of each, which is determined by the shocks
If you have ambiguous change, how do you know what direction price or quantity is moving?
You don’t. Unless you have more information saying which shock has more influence, you don’t know which direction to go
When you have multiple shifts, what is an ambiguous change?
An ambiguous change is when the shifts move in opposite direction
When you have multiple shifts, what is an unambiguous change?
An unambiguous change is when the shifts move in the same direction
How is quantity and price influenced with each shock?
Positive demand shock: Price increases, Quantity increases
Negative demand shock: Price decreases, Quantity decreases
Positive supply shock: Price decreases, Quantity increases
Negative supply shock: Price increases, Quantity decreases
How many possible shocks are there and what are they?
There are four possible shocks. These are the positive demand shock, negative demand shock, positive supply shock, negative supply shock
Do shifts effect equilibrium?
All shifts do with equilibrium is move its location. If there is equilibrium, if will fall back into equilibrium eventually after the shift occurs.
What is a shock and what are the two types of shocks?
A shock is a shift in either the supply or demand curve. The two shocks and positive shock (increase) or negative shock (decrease)
What is disequilibrium?
Disequilibrium is where something is constantly changing (the opposite of equilibrium)
On the supply and demand graphical model, where is equilibrium typically located?
Equilibrium is typically located where the supply curve and demand curve cross.
In economics, what is the equilibrium?
The equilibrium is the point where that remains unchanged unless an outside force acts upon it.
What is a shortage?
A shortage is when quantity DEMANDED > quantity SUPPLIED
What is a surplus?
A surplus is when quantity SUPPLIED > quantity DEMANDED
How does the supply curve shift with a change in number of producers?
If there is an increase in producers, supply shifts right; if there is a decrease, supply shifts left
How does the supply curve shift with a change in future expectations?
If the price is expected to drop in the future, supply will shift right. If the price is expected in increase in the future, supply will shift left (firms want to make as much money as possible)
How does the supply curve shift with a change in related goods or services?
Assuming the firm produces multiple items, if Item A has an increase in price, the supply will increase to help the firm make as much money as possible. When this happens, more resources are being put into Item A, so Item B’s supply will decrease
How does the supply curve shift with a change in technology?
If there is an increase in technology (assuming it is cheaper), supply will shift right; if there is a decrease, supply will shift left
How does the supply curve shift with a change in input price (cost of production)?
If the cost of production increases then supply will shift left; if it decreases, supply will shift right
What are the supply shifts?
Change in input price (cost of production), technology, related goods or services, expectations of the future, and number of producers
How many shifts in supply are there?
There are 5 (main) supply shifts
How does the supply curve move if it were to decrease or increase?
The supply curve shifts to the left if supply decreases and shifts the right is supply increases
What is the Law of Supply?
If price increases, supply increases
