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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
individual supply
the quantity supplied of an individual producer
26
market supply
the sum of all individual firm’s supply
27
why quantity supplied and price have a direct relationship
profit effect, cost effect
28
profit effect
sellers want to make as much money as possible, higher price equals higher profit
29
cost effect
costs per unit will increase with the rise of quantity supplied; producers will only produce them when the per unit price is higher
30
what causes a shift of the supply curve
changes in non-price determinants
31
non-price determinants of supply
FOP's price changes, technology changes, price of related goods (competitive, joint supply), expectation of prices changes, number of firms, government action, shocks
32
if the FOP's price increases, the good will become _____ profitable and the supply curve will shift to the _____
less, left
32
if the FOP's price decreases, the good will become _____ profitable and the supply curve will shift to the _____
more, right
33
what causes a shift left of the supply curve
decrease in supply
34
market equilibrium
a market state where the supply in the market is equal to the demand in the market
35
excess demand
a shortage of goods e.g. a shortage of rental properties will increase rent prices in all properties
36
excess supply
a surplus (glut) of goods available will decrease the price e.g. excess of rental properties available will decrease rent prices
37
factors that create new market equilibriums
changes in the non-price determinants of supply and demand
38
demand increases, supply increases
price is uncertain, quantity increases
39
demand increases, supply decreases
price increases, quantity is uncertain
40
demand decreases, supply increases
price decreases, quantity is uncertain
41
price mechanism
a system of interdependence between supply and demand of a good and its price
42
what the price mechanism does
sends the price up when there is excess demand/shortages and down when there is excess supply/surpluses
43
signal/incentive of price increase to producers
shortage of goods, more must be produced
44
signal/incentive of price increase to consumers
the good is more expensive, demand decreases
45
rationing
how to distribute something amongst people
46
consumer surplus
the maximum price a consumer is willing to pay - the price the consumer pays
47
what the demand curve also represents
marginal benefit curve
48
marginal benefit
the additional satisfaction/utility that a person receives from consuming an additional unit of a good/service
49
producer surplus
the price received by firms for selling their good - the lowest price that they are willing to accept to produce the good
50
vertical distance to demand curve
marginal benefit
51
vertical distance to supply curve
marginal cost curve
52
marginal cost
the change in the total cost that arises when the quantity produced is incremented by one unit
53
social (total) surplus
a measure of the well-being of a society, maximization of social surplus and welfare is desirable in society
54
allocative efficiency
achieved if society is getting the goods and services it wants; marginal benefit = marginal cost
55
behavioral economics
system which questions rational consumer choices
56
availability
most recent information that influences how we think and what we decide e.g. bird flu outbreak on the news
57
anchoring
relying on the first information heard, when prices are presented a certain way e.g. 99 cents, half price
58
framing
the way information is presented makes the good appear more positive e.g. yogurt 90% fat free
59
“Rule of thumb"
making decisions with quick, practical thinking
60
rationality bound
we do not have the amount of information/time and cognitive skills to make rational decisions
61
self-control bound
we don’t have perfect self control, and often give into temptations
62
selfishness bound
we do not always act in our own self-interest, we care about the wellbeing of others
63
perfect information bound
we don’t always get the most accurate information about products, or we’re unable to process it all
64
choice architecture
the idea that choices can be packaged and presented in ways that manipulate decisions
65
default choices
when we do not think about something and fall back onto what we always do e.g. Google
66
restricted choices
when you give people choices but it is weighted towards one of the choices e.g. apples in McDonald’s
67
mandated choices
when you make a decision required by law e.g. ticking the organ donor box Y/N when getting a driver’s license
68
who created the nudge theory
richard thaler
69
nudge theory
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
growth maximization
a strategy pursued by firms wishing to expand the size of the firm with regard to productive capacity
71
corporate social responsibility
firms may consider that they can gain a market advantage by ensuring social welfare in their economic activity
72
satisficing
firms are complex with competing objectives, therefore the goals of the company may be compromised
73
productive efficiency
refers to producing goods with the fewest resources possible (producing at the lowest cost)
74
social surplus occurs when
MB = MC

IB Economics (4 decks)

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