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CFA Level I > Supply and Demand Primer > Flashcards

Supply and Demand Primer Flashcards

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CFA flashcards
1
Q

Economics

A

study of production, distribution and consumption

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2
Q

Macro-economics

A

aggregate economics; quantities; ex: national output or national income

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3
Q

Micro-economics

A

market analysis and decision based on individuals (homes and businesses)

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4
Q

Supply and Demand Analysis

A

study how buyers and sellers interact to decide prices and quantities

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5
Q

Consumers

A

households; individuals

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6
Q

Firms

A

companies; producers

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7
Q

Consumption

A

demands for goods and

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8
Q

Theory of the Consumer

A

households want more bang for their buck

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9
Q

Theory of the Firm

A

supply and goods of survives by profit-maximizing firms

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10
Q

Factors Market

A

markets for the purchase and sale of factors used in production;ex: land, labor, materials of production; household = sellers; firms = buyers

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11
Q

Labor Market

A

type of factor markets; households sell services when they think payment outweighs the free time they have to give up; firms hire workers when they think the cost of payment is not as important as the productivity gains

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12
Q

Goods Market

A

markets for the output of production; sellers firms; buyers households AND firms

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13
Q

Intermediate Goods/Services

A

G/S used as inputs to produce other G/S; not the final product

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14
Q

Capital Markets

A

markets for long-term financial capital; equity or bond markets

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15
Q

Demand

A

willingness/ability of consumers to purchase a given amount good/service at a given price

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16
Q

Supply

A

willingness/ability of producers to sell a given Q for a given price

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17
Q

Equilibrium Quantity

A

when highest price buyers will accept matches the lowest price sellers want to sell

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18
Q

Equilibrium Price

A

when the quantity buyers are willing to buy matches the quantity sellers are willing to sell

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19
Q

Law of Demand

A

general theory is that as price rises, people will buy less of it and vice versa

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20
Q

Demand Function

A

sees quantity as a function of price; price influences how much demand there is; Q = (Px, income, Py); Q is influenced by Px

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21
Q

Own Price

A

Px; only references the price of a specific product; and not some other product

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22
Q

Ceteris Paribus

A

holding all other things equal; aka comparing the independent variable against only one variable

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23
Q

Inverse Demand Function

A

views price as a function of quantity; aka about prices not quantity

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24
Q

Demand Curve

A

shows 1) the largest Q a household will buy at a given price 2) the highest price a consumer would be willing to pay for a given Q; graph of the inverse demand function

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25
Q

Slope/Curve

A

“rise over run”= change in vertical / change in horizontal

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26
Q

Supply Function

A

Quantity supplied as a function of price; quantity depends on price of goods being made/ being sold;

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27
Q

Technology of Production

A

“rules” that govern the transformation of inputs/COP transformation

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28
Q

COP

A

transforming factors/inputs into finished goods/services/ outputs

29
Q

Supply Curve

A

graph of the inverse supply function

30
Q

Change in Supply

A

shift in the supply curve

31
Q

Change in Quantity Supplied

A

movement along the supply curve; only happens with the selling price change of the product

32
Q

Market Equilibrium

A

when quantity offered for sale at a given price is EQUAL to the quantity demanded from buyers at the same price

33
Q

Behavioral Models

A

model the behavior of buyers and sellers

34
Q

Exogenous Variables

A

variables other than price and quantity that are determined by factors outside of the demand/supply model

35
Q

Endogenous Variables

A

quantity and price as defined in the model market; not external factors

36
Q

Equilibrium Condition

A

an equation that solves the unknown (exo factors) with the Endo factors

37
Q

Partial Equilibrium Analysis

A

concentrating on one market and the exogenous variables as given

38
Q

General Equilibrium Analysis

A

taking into account all the factors in all markets simultaneously

39
Q

Market Mechanism

A

when price adjusts so there is neither excess supply or excess demands

40
Q

Excess Supply

A

quantity supplied is larger than demanded; fix: prices falls

41
Q

Excess Demand

A

quantity supplied is less than demanded; fix: price increases

42
Q

Stable Equilibrium

A

when price is bumped from equilibrium price it tends to go back

43
Q

Unstable Equilibrium

A

when a pricing over equilibrium price will create excess demand, and price below price equilibrium would cause excess supply

44
Q

Elasticity

A

the ratio of percentage changes; how sensitive one variable is to another

45
Q

Own-Price Elasticity

A

how the price of a product relates to demand

46
Q

Short Run

A

period where at least 1 factor of production is fixed

47
Q

Long Run/ Planning Horizon

A

all factors of production are variable; in this period firms can enter or exit the market based off of profitability

48
Q

SRATC

A

short run avg total costs; defines what the per-unit cost will be for any Q in the short run

49
Q

LRATC

A

Long run avg total cost; lowest cost per unit where output can be produced over a long time when the firm can make technology/plant size/ physical capital adjustments

50
Q

Economies of Scale/ Increasing Returns to Scale

A

output increases at a greater rate than input increases

51
Q

Diseconomies of Scale/ Decreasing Returns to Scale

A

when output increases by a smaller amount than increase in inputs

52
Q

Minimum Efficient Scale

A

MES; minimum point on the LRATC

53
Q

Constant Returns to Scale

A

output increases by the same proportion as the increase in inputs

54
Q

Long Run Insustry Supply Curve

A

shows relationship between quantities supplied and output prices for an industry when firms are able to exit/enter the market in response to the level of short term economic profit

55
Q

Increasing-Cost Industry

A

price and costs are higher than industry output is increased in the long-run (slopes positive)

56
Q

Decreasing-Cost Industry

A

resource costs go down, so output prices can go down

57
Q

Constant-Cost Industry

A

cost of resources doesn’t change

58
Q

Productivity

A

average output per unit of input

59
Q

Total Product

A

sum of all inputs during a time period

60
Q

Average Product

A

measure of labor’s productivity; TP/ L or Q/L

61
Q

Marginal Product Return

A

result of additional output from using one more unit of input assuming other inputs are fixed; Change in TP / change in L (or change in Q)

62
Q

Increasing Marginal Returns

A

marginal product of a resource increases as additional units of that input are employed

63
Q

Law of Diminishing Returns

A

at some point adding more resources is a negative thing

64
Q

Marginal Revenue Product

A

price of input; MP x Pl measures the value of the input to the firm in terms of its contribution to TR

65
Q

Ascending Price Auction

A

an auction in which an auctioneer calls out prices for a single item and potential buyers bid directly against each other, with each subsequent bid being higher than the previous one

66
Q

Dutch Auction

A

auction in which the auctioneer begins at a high price, then lowers the called price in increments until there is a willing buyer for the item being auctioned

67
Q

Second Sealed Price Auction

A

auction (also known as a Vickery auction) in which bids are submitted in sealed envelopes and opened simultaneously. The winning buyer is the one who submitted the highest bid, but the price paid is equal to the second highest bid

68
Q

SinglePrice Auction

A

Dutch auction variation, also involving a single price, is used in selling US Treasury securities

CFA Level I (8 decks)

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