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
How does the demand curve move with a change in substitutes?
If the demand of one substitute decreases, the demand for the other will increase
What are substitute goods?
Substitutes are items that can replace one another, like tea and coffee
How does the demand curve shift in changes with complements?
If the demand of one complement good decreases (usually because of increase in price), the demand of the other will decrease
What is are complement goods?
Complement goods are items that are traditionally bought together, like PB+J
What are the two types of related goods?
Complements and substitutes
How does the demand curve shift for a change in number of consumers?
The curves shifts to left if there are less consumers and shifts to the right if there are more consumers
How does the demand curve move with a change in expectations of the future?
The curve shifts to the left if price is expected to drop in the future and shifts to the right if price is expected to increase in the future
What direction does the demand curve move for a change in preference?
Shifts to left if consumer(s) prefer another item, shifts to the right if consumer(s) prefer that item
What direction does the demand curve move for changes in income?
Left for decreased income, right for increased income
What are the demand shifts
Change in income, preference, expectations about the future, number of consumers, and price of related good or service
How many demand shifts are there?
There are 5 demand shifts
What direction do you shift the demand curve if the demand were to increase or decrease?
You shift the demand curve to the left if demand decreases and you shift the curve to the right if demand increases
What is a Vablan Good?
A Vablan Good is an item you purchase to show off (conspicuous good), like a diamond ring
What is an Experienced Good?
An experienced good is an item that you don’t know the quality of until after you purchase it.
Are there any exceptions to the Law of Demand? If so, what are they?
Yes, there are exceptions, they are just extremely rare. Two examples are Experienced Goods and Vablan Goods
What is the income effect?
The phenomenon that a person is only likely to buy items if they are financially disadvantaged. (I.e. ramen noodles)
What is the substitution effect?
The phenomenon that if a price of one item (Item A) increases, the demand for an item that can replace Item A (Item B) will increase
On the supply and demand model, what variables are found on the axes
Price is found on the y-axis and quantity is found on the x-axis
What is the Law of Demand?
As price decreases, demand increases
What are the parts needed to use the Supply and Demand model?
Demand curve, supply curve, shifts, equilibrium, dynamics
How is a market considered a “competitive market?”
Competitive markets are categorized by a LARGE number of buyers and sellers (supply and demand doesn’t work very well with a small group), and none of the economic agents have total market power that allow them to manipulate price however they want.
What is supply and demand?
A model that displays a competitive market
