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AP Microeconomics > Unit 2: Supply and Demand > Flashcards

Unit 2: Supply and Demand Flashcards

1
Q

Competitive market

A

Market in which there are many buyers and sellers of the same good or service, none of whom can influence the price at which the good or service is sold

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2
Q

Supply and demand model

A

Model of how a competitive market works

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3
Q

Demand schedule

A

Shows how much of a good or service consumers will be willing and able to buy at different prices

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4
Q

Quantity demanded

A

Actual amount of a good or service consumers are willing to buy at some specific price

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5
Q

Demand curve

A

Graphical representation of the demand schedule, showing the relationship between quantity demanded and price

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6
Q

Law of demand

A

States that higher price for a good of service, all other things being equal, leads people to demand a smaller quantity of that good or service

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7
Q

Change in demand

A

Shift of the demand curve, changing the quantity demanded at any given price

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8
Q

Movement along the demand curve

A

Change in the quantity demanded of a good that is the result of a good’s price change

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9
Q

Substitutes

A

Increase in price of one good results in the increased demand of the other

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10
Q

Complements

A

Increase in the price of one good results in a decreased demand for the other good

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11
Q

Normal good

A

Rise in income increases the demand for a good (normal case)

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12
Q

Inferior good

A

Rise in income decreases the demand for a good

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13
Q

Individual demand curve

A

Illustrates the relationship between the quantity demanded and price for an individual consumer

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14
Q

Quantity supplied

A

Actual amount of a good or service producers are willing to sell at some specific price

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15
Q

Supply schedule

A

Shows how much of a good or service producers will supply at different prices

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16
Q

Supply curve

A

Shows the relationship between quantity supplied and price

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17
Q

Law of supply

A

States that, other things being equal, the price and quantity supplied of a good are positively related

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18
Q

Change in supply

A

Shift of the supply curve, which changes the quantity supplied at any given price

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19
Q

Movement along the supply curve

A

Change in the quantity supplied of a good that is the result of a change in that good’s price

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20
Q

Input

A

Anything that is used to produce a good or service

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21
Q

Individual supply curve

A

Illustrates the relationship between quantity supplied and price for an individual producer

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22
Q

Equilibrium

A

Economic situation in which no individual would be better off doing something different

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23
Q

Equilibrium price (market-clearing price)

A

The price at which the quantity demanded of a good equals the quantity supplied of that good

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24
Q

Equilibrium quantity

A

Quantity of the good bought and sold at the equilibrium price

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25
Q

Surplus

A

Quantity supplied exceeds the quantity demanded (occurring when price is above the equilibrium level)

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26
Q

Shortage

A

Quantity demanded exceeds the quantity supplied (occurring when price is below its equilibrium level)

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27
Q

Price controls

A

Legal restriction on how high or low a market price may go (2 forms: price ceiling and price floor)

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28
Q

Price ceiling

A

Maximum price sellers are allowed to charge for a good or service

29
Q

Price floor

A

Minimum price buyers are required to pay for a good or service

30
Q

Inefficient allocation to consumers

A

People who want the good badly and are willing to pay a high price don’t get it, and those who care relatively little about the good and are only willing to pay a relatively low price do get it (often caused by price ceilings)

31
Q

Wasted resources

A

People expend money, effort, and time to cope with shortages (typically caused by price ceilings)

32
Q

Minimum wage

A

Legal floor on the wage rate, which is the market price of labor

33
Q

Inefficiently low quality

A

Sellers offer low-quality goods at a low price even though buyers would prefer a higher quality at a higher price (often caused by inefficiency from price ceilings)

34
Q

Black market

A

Market in which goods or services are bought and sold illegally (either because it is illegal to sell them at all or because the prices charged are legally prohibited by a price ceiling)

35
Q

Inefficient allocation of sales among sellers

A

Those who would be willing to sell the goods at the lowest price are not always those who managed to sell it (caused by price floors)

36
Q

Inefficiently high quality

A

Sellers offer high-quality goods at a high price, even though buyers would prefer a lower quality at a lower price (often caused by price floors)

37
Q

Quality control (quota)

A

An upper limit on the quantity of some good that can be bought or sold

38
Q

License

A

Gives its owner the right to supply a good or service

39
Q

Demand price

A

Price at which consumers will demand that quantity

40
Q

Supply price

A

Price at which producers will supply that quantity

41
Q

Wedge

A

Difference between the demand and supply price of a good, in which the price paid by buyers ends up being higher than that received by sellers (driven b quantity control, or quotas)

42
Q

Quota rent

A

Difference between demand and supply price at the quota amount, the earnings that accrue to the license-holder from ownership fo the right to sell the good (equal to the market price of the license when the licenses are traded)

43
Q

Deadweight loss

A

Lost gains associated with transactions that do not occur due to market intervention

44
Q

Substitution effect

A

Change in the quantity demanded as the good that has become relatively cheaper is substituted for the good that has become relatively more expensive

45
Q

Income effect

A

Change in the quantity of a good demanded that results from a change in overall purchasing power of the consumer’s income due to a change in the price of that good

46
Q

Percent change in quantity demanded (eq)

A

(Change in quantity demanded / initial quantity demanded)(100)

47
Q

Price elasticity of demand

A

Ratio of the percent change in the quantity demanded to the percent change in the price as we move along the demand curve (dropping the minus sign)

48
Q

Price elasticity of demand (eq)

A

% Change in quantity demanded / % change in price (w/o negative)
q2 - q1 / {(q1 + q2) /2}
——————————–
p2 - p1 / {p1 + p2} / 2

49
Q

Percent change in price (eq)

A

(New price / old price)(100)

50
Q

Midpoint method

A

Technique for calculating the percent change (calculate changes in a variable compared with the average, or midpoint, of the initial and final values)

51
Q

Percent change in midpoint method (eq)

A

(Change in x / average value of x)(100)

52
Q

Average value in midpoint method (eq)

A

(Starting value of x + final value of x) / 2

53
Q

Perfectly inelastic

A

Quantity demanded doesn’t respond at all to changes in price (demand curve = vertical line

54
Q

Perfectly elastic

A

Any price increase will cause the quantity demanded to drop to zero (demand curve = horizontal)

55
Q

Elastic

A

Price elasticity of demand is greater than 1

56
Q

Inelastic

A

Price elasticity of demand is less than 1

57
Q

Unit-elastic

A

Price elasticity of demand is exactly 1

58
Q

Total revenue

A

Total value of sales of a good or service; price x quantity sold

59
Q

Cross-price elasticity of demand (eq)

A

% change in price of B

60
Q

Cross-price elasticity of demand

A

Measures the effect of the change in one good’s price on the quantity demanded of the other good

61
Q

Income elasticity of demand (eq)

A

% Change in income

62
Q

Income elasticity of demand

A

Percent change in the quantity of a good demanded when a consumer’s income changes divided by the percent change in the consumer’s income

63
Q

Income-elastic

A

Income elasticity of demand for a good is greater than 1

64
Q

Income-inelastic

A

Income elasticity of demand for a good is positive but less than 1

65
Q

Price elasticity of supply (eq)

A

% change in price

66
Q

Price elasticity of supply

A

Measure of the responsiveness of the quantity of a good supplied to the price of that good

67
Q

Perfectly inelastic supply

A

Price elasticity of supply is zero, so that changes in the price of the good have no effect on the quantity supplied (supply curve = vertical line)

68
Q

Perfectly elastic supply

A

Quantity supplied is zero below some price and infinite above that price (supply curve = horizontal line)

AP Microeconomics (2 decks)

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