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IB Economics > Unit 2 Competitive Markets (Demand & Supply) > Flashcards

Unit 2 Competitive Markets (Demand & Supply) Flashcards

1
Q

market

A

exists when buyers and sellers interact to exchange goods and services

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2
Q

must be present for a market to occur

A

buyers, sellers

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3
Q

types of markets

A

local, national, global, factor, product, financial

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4
Q

competitive market

A

composed of many independent buyers and sellers so no one buyer or seller has control over price

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5
Q

demand

A

the willingness and ability to purchase an amount of a good or service at a particular price during a time period

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6
Q

individual demand

A

the demand of the individual person after they have assessed the marginal costs and marginal benefits

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7
Q

market demand

A

the sum of all individuals’ demand

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8
Q

hypothesis

A

statement on a possible relationship

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9
Q

theory

A

consistent hypothesis

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10
Q

law

A

a theory that is never refuted

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11
Q

law of demand

A

as the price of a good increases, the quantity demanded of the good falls, and as the price of a good decreases, the quantity demanded of the good rises, ceteris paribus

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12
Q

type of relationship between price and quantity demanded

A

inverse casual

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13
Q

why the demand curve is downward sloping

A

decreasing marginal benefit, substitution effect, income effect

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14
Q

substitution effect

A

when consumers begin to consume a cheaper alternative due to a price increase

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15
Q

income effect

A

if the price increases, consumers’ real income is lowered as they can only afford a certain amount

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16
Q

what causes movement along the demand curve

A

price changes

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17
Q

what causes a shift of the demand curve

A

non-price determinants

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18
Q

non-price determinants of demand

A

household income, future price expectations, price of substitutes, tastes and preferences, population/demographic changes

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19
Q

normal good

A

demand rises as income rises and vice versa

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20
Q

inferior goods

A

demand falls as income rises and vice versa

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21
Q

supply

A

willingness and ability of producers to produce an amount of a good/service at a particular price during a particular time period

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22
Q

law of supply

A

an increase in price results in an increase in quantity supplied, ceteris paribus

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23
Q

relationship between price and quantity supplied

A

direct/positive

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24
Q

what causes movement along the supply curve

A

when the price of the good and the quantity supplied changes

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25
Q

individual supply

A

the quantity supplied of an individual producer

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26
Q

market supply

A

the sum of all individual firm’s supply

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27
Q

why quantity supplied and price have a direct relationship

A

profit effect, cost effect

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28
Q

profit effect

A

sellers want to make as much money as possible, higher price equals higher profit

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29
Q

cost effect

A

costs per unit will increase with the rise of quantity supplied; producers will only produce them when the per unit price is higher

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30
Q

what causes a shift of the supply curve

A

changes in non-price determinants

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31
Q

non-price determinants of supply

A

FOP’s price changes, technology changes, price of related goods (competitive, joint supply), expectation of prices changes, number of firms, government action, shocks

32
Q

if the FOP’s price increases, the good will become _____ profitable and the supply curve will shift to the _____

A

less, left

32
Q

if the FOP’s price decreases, the good will become _____ profitable and the supply curve will shift to the _____

A

more, right

33
Q

what causes a shift left of the supply curve

A

decrease in supply

34
Q

market equilibrium

A

a market state where the supply in the market is equal to the demand in the market

35
Q

excess demand

A

a shortage of goods e.g. a shortage of rental properties will increase rent prices in all properties

36
Q

excess supply

A

a surplus (glut) of goods available will decrease the price e.g. excess of rental properties available will decrease rent prices

37
Q

factors that create new market equilibriums

A

changes in the non-price determinants of supply and demand

38
Q

demand increases, supply increases

A

price is uncertain, quantity increases

39
Q

demand increases, supply decreases

A

price increases, quantity is uncertain

40
Q

demand decreases, supply increases

A

price decreases, quantity is uncertain

41
Q

price mechanism

A

a system of interdependence between supply and demand of a good and its price

42
Q

what the price mechanism does

A

sends the price up when there is excess demand/shortages and down when there is excess supply/surpluses

43
Q

signal/incentive of price increase to producers

A

shortage of goods, more must be produced

44
Q

signal/incentive of price increase to consumers

A

the good is more expensive, demand decreases

45
Q

rationing

A

how to distribute something amongst people

46
Q

consumer surplus

A

the maximum price a consumer is willing to pay - the price the consumer pays

47
Q

what the demand curve also represents

A

marginal benefit curve

48
Q

marginal benefit

A

the additional satisfaction/utility that a person receives from consuming an additional unit of a good/service

49
Q

producer surplus

A

the price received by firms for selling their good - the lowest price that they are willing to accept to produce the good

50
Q

vertical distance to demand curve

A

marginal benefit

51
Q

vertical distance to supply curve

A

marginal cost curve

52
Q

marginal cost

A

the change in the total cost that arises when the quantity produced is incremented by one unit

53
Q

social (total) surplus

A

a measure of the well-being of a society, maximization of social surplus and welfare is desirable in society

54
Q

allocative efficiency

A

achieved if society is getting the goods and services it wants; marginal benefit = marginal cost

55
Q

behavioral economics

A

system which questions rational consumer choices

56
Q

availability

A

most recent information that influences how we think and what we decide e.g. bird flu outbreak on the news

57
Q

anchoring

A

relying on the first information heard, when prices are presented a certain way e.g. 99 cents, half price

58
Q

framing

A

the way information is presented makes the good appear more positive e.g. yogurt 90% fat free

59
Q

“Rule of thumb”

A

making decisions with quick, practical thinking

60
Q

rationality bound

A

we do not have the amount of information/time and cognitive skills to make rational decisions

61
Q

self-control bound

A

we don’t have perfect self control, and often give into temptations

62
Q

selfishness bound

A

we do not always act in our own self-interest, we care about the wellbeing of others

63
Q

perfect information bound

A

we don’t always get the most accurate information about products, or we’re unable to process it all

64
Q

choice architecture

A

the idea that choices can be packaged and presented in ways that manipulate decisions

65
Q

default choices

A

when we do not think about something and fall back onto what we always do e.g. Google

66
Q

restricted choices

A

when you give people choices but it is weighted towards one of the choices e.g. apples in McDonald’s

67
Q

mandated choices

A

when you make a decision required by law e.g. ticking the organ donor box Y/N when getting a driver’s license

68
Q

who created the nudge theory

A

richard thaler

69
Q

nudge theory

A

a belief that consumers can be encouraged to make decisions that are better for them and society e.g. placement of fruit at the entrance to a school cafeteria

70
Q

growth maximization

A

a strategy pursued by firms wishing to expand the size of the firm with regard to productive capacity

71
Q

corporate social responsibility

A

firms may consider that they can gain a market advantage by ensuring social welfare in their economic activity

72
Q

satisficing

A

firms are complex with competing objectives, therefore the goals of the company may be compromised

73
Q

productive efficiency

A

refers to producing goods with the fewest resources possible (producing at the lowest cost)

74
Q

social surplus occurs when

A

MB = MC

IB Economics (4 decks)

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