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Econ 101 > Unit 1 - Supply and Demand > Flashcards

Unit 1 - Supply and Demand Flashcards

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1
Q

Markets for goods and services

A

Firms sell, households buy

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2
Q

Firms

A

Produce and sell, hire and use factors of production

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3
Q

Households

A

buy and consume, own and sell factors of production

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4
Q

Markets for factors of production

A

households sell, firms buy

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5
Q

factors of production

A

labor, capital, land

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6
Q

Perfectly competitive market characteristics

A

Enough buyers and sellers so no one can affect the prices - everyone is a price taker.

Everyone sells the same good

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7
Q

Price taker

A

takes prices as given when deciding

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8
Q

homogenous good

A

the same good
i.e. agricultural industry - apples

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9
Q

imperfect competition

A

can exist as a monopoly, monopolistic competition, or monopsony

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10
Q

Initial assumption

A

no market failure

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11
Q

Quantity demanded

A

amount that a consumer is willing to buy at a particular price (i.e. 1 point on the line)

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12
Q

Demand

A

relationship between price and quantity demanded (i.e. the whole line)

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13
Q

The demand curve

A

doesn’t need to be straight, represents P & Q relationship, represents personal preference

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14
Q

Why is slope of the demand curve negative?

A

Law of Demand: when price of a good rises, the quantity demanded falls

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15
Q

Shifts of demand (what is held constant in the demand curve?)

A

Normal good: you demand more when income increases

inferior good: you demand less when income decreases and usually has a better substitute

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16
Q

how will an increase in income affect demand for a normal good?

A

it’s not a variable on the graph, so it’s held constant when we draw the curve. when it changes, the curve shifts.

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17
Q

an increase in income

A

causes D curve to shift out (higher quantity demanded at any price)

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18
Q

complements in consumption

A

goods used together (i.e. coffee & sugar)

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19
Q

substitutes in consumption

A

goods used instead of each other (i.e. coffee & tea)

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20
Q

consumer preferences

A

can change b/c of trends, weather, knowledge, etc. and lead to shifts of D curve

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21
Q

Shifts along the demand curve

A

Caused by changes in income, prices of other goods, tastes (held constant in D curve)

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22
Q

Movements along the demand curve

A

caused by a change in the price of a good

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23
Q

market demand curve

A

horizontally sum all the individual demand curves

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24
Q

what is held constant in D curve?

A
  1. prices of complements/substitutes in consumption
  2. preferences
  3. income (based on specific type of good)
  4. expectations of future price increases (buy goods @ lower prices if they’ll increase later)
25
Q

Principle 1 of Microeconomics: People Face Trade-Offs

A

Efficiency vs. equality

26
Q

Efficiency

A

society gets max benefits from its scarce resources

27
Q

Equality

A

uniform distribution of resources among society’s members

28
Q

Principle 2

A

The Cost of Something Is What You Give Up to Get It

opportunity cost: what’s given up to get an item

29
Q

Principle 3

A

Rational People Think at the Margin

rational people and marginal change

30
Q

rational people

A

systematically and purposefully do the best to achieve their objectives, given available opportunities

31
Q

marginal change

A

a small incremental adjustment to an existing plan of action

32
Q

Principle 4

A

People Respond to incentives

33
Q

incentive

A

induces action (i.e. punishment or reward)

34
Q

Principle 5

A

Trade can make everyone better off

trade allows specialization for each person & buying goods and services at a lower cost

35
Q

Principle 6

A

Markets are usually a good way to organize economic activity

36
Q

market economy

A

allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services

37
Q

Adam Smith’s invisible hand theory

A

households and firms interact in markets as if they are guided by this –> desirable market outcomes

38
Q

Smith’s corollary

A

When a government prevents
prices from adjusting naturally to supply and demand, it impedes the invisible hand’s ability to coordinate the decisions of the households and firms that make up an economy

39
Q

Principle 7

A

Gov’t can sometimes improve market outcomes

market economies need institutions to enforce property rights so individuals can own and control scarce resources

40
Q

property rights

A

the ability of an individual to own and exercise control over scarce resources

41
Q

Why might a government intervene in the market economy?

A

to promote efficiency or to promote equality

42
Q

market failure

A

market on its own fails to produce an efficient allocation of resources

43
Q

Quantity supplied

A

point on supply curve

44
Q

Supply/supply curve

A

entire line

45
Q

Why does the S curve slope up as the quantity supplied increase?

A

cost of making 1 more unit of the good increases

46
Q

What is held constant in supply curve?

A

input costs (or input prices)

prices of complements and substitutes in production

technology

weather (for agriculture goods)

taxes

expectations of future price increases (applies if you can store good)

47
Q

input costs (or input prices)

A

good used in the production of another good

48
Q

complements in production

A

goods produced together (i.e. nonfat milk & cream)

49
Q

substitutes in production

A

goods that can be produced instead of each other (i.e. nonfat milk and 2% milk)

50
Q

technology

A

new machine allows for faster cappuccino production (less labor)

51
Q

weather (for agricultural goods)

A

like tech

52
Q

taxes

A

like input costs

53
Q

market supply curve

A

horizontal sum of individual S curves

54
Q

equilibrium

A

where supply and demand are in balance, Qs = Qd (stable outcome, no pressure for price to go up/down)

55
Q

shortage

A

Qd > Qs, price increases

56
Q

equilibrium

A

no more pressure on price

57
Q

How do price changes influence the market?

A

it goes to equilibrium

58
Q

surplus

A

lowers price, Qd < Qs, price fall

Econ 101 (5 decks)

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