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Economics SL (Year 1) - IB > Unit 2A - Supply and Demand > Flashcards

Unit 2A - Supply and Demand Flashcards

1
Q

Demand

A

The quantities of a good/service people are willing & able to purchase at their given prices

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2
Q

Demand Schedule

A

Table showing quantities of a good/service people are willing & able to purchase at their given prices over a specific time period

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3
Q

Demand Curve

A

Graph showing quantities of a good/service people are willing & able to purchase at their given prices over a specific time period

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4
Q

Law of Demand

A

As the price of a product falls, the product’s quantity demanded increases [other things being equal]

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5
Q

Reasons for Law of Demand:

A
  • More people are able to purchase the product
  • People can purchase more of the product than before at the same cost (aka increase in purchasing power)
  • People will switch from similar goods to the cheaper good
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6
Q

Market

A

People who want and are able to buy a product

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7
Q

Market Size Effect

A

Demand increases as the market size increases

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8
Q

Income Effect

A

Demand increases as incomes increase

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9
Q

Substitution Effect

A

Demand changes as one good is substituted for another

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10
Q

Normal Good

A

A good in which a higher quantity is purchased as income rises

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11
Q

Inferior Good

A

A good in which a smaller quantity is purchased as income rises

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12
Q

Substitute Good

A

Goods that are used to replace each other

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13
Q

Complementary goods

A

Goods that are used jointly

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14
Q

Independent good(s)

A

Goods whose demands are not related

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15
Q

↑Y (income)

A

↑D (demand) for normal goods, ↓D for inferior goods

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16
Q

↑ P (price) Sub. X

A

↑D for good Y; ↓D for good X

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17
Q

↑P Complementary X

A

↓D for Y

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18
Q

↑No. of Consumers of Y

A

↑D of Y

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19
Q

↑T (Tastes)

A

↑D of Y

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20
Q

↑A (Advertising)

A

↑T

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21
Q

↑P after time

A

↑D until ↑P

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22
Q

↑Y after time

A

↑D

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23
Q

Elasticity of Demand

A

The change of quantity demanded by the change of determinants of demand

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24
Q

Elastic Demand

A
  • % change in quantity demanded > price change %
  • Companies see increase in revenue by decreasing price
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25
Q

Inelastic Demand

A
  • % change in quantity demanded < price change %
  • Companies see increase in revenue by increasing price
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26
Q

Unitary Elastic Demand

A

% change in quantity demanded = price change %

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27
Q

↓P (Price) → ↑R (Revenue)

A

Cost of output must be determined for profit

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28
Q

↑P → ↑R

A

Total cost decreases from less output (justified by profit)

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29
Q

Price Elasticity of Demand

A

The change of quantity demanded by the change of the price of a product

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30
Q

Formula: Price Elasticity of Demand

A

PED = Qd/P = (q2 - q1/q1)/(p2 -p1/p1), where p1 and q1 are the original quantities

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31
Q

Availability of substitutes to elasticity of demand

A

Price elasticity will be greater if many substitutes are available for it

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32
Q

Importance in budgets

A

The importance a good has on household budgets will affect the change of the rate of purchase of that good by the change of that good’s price

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33
Q

Time

A
  • In the short term, buyers may not find substitutes and do not change consumption habits.
  • In the long term, consumers may hold more elastic demand.
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34
Q

Supply

A

The quantities of goods/services sellers are willing to sell at various possible prices

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35
Q

Supply Schedule

A

Table showing the quantities of goods/services sellers are willing to sell at various possible prices at a period of time

36
Q

Expectations and Demand

A

Expectations affect demand by time of price changes and time of income changes

37
Q

Law of Supply

A

As the price of a product falls, other things being equal, the quantity offered for sale decreases.

38
Q

Supply Curve

A

Graph showing the various quantities of a good/service sellers are willing and able to sell at different prices

39
Q

Substitutes in Production

A

Goods produced as alternatives to each other

40
Q

Complements in Production/Joint Products

A

Goods that are produced together

41
Q

Supply Shifter

A

A non-price determinant of supply

42
Q

↑No. of Suppliers

A

↑S (Supply)

43
Q

↑C (Input Costs)

A

↓S

44
Q

↑Efficiency / Technology

A

↑S

45
Q

↑Taxes

A

↓S

46
Q

↑Subsidies

A

↑S

47
Q

↑Price of Sub. X

A

↓S of Y

48
Q

↑Price of Comp. X

A

↑S of Y

49
Q

↑P after time

A

↓S until ↑P

50
Q

Surplus

A

The excess of quantity supplied over quantity demanded

51
Q

Shortage

A

The excess of quantity demanded over quantity supplied

52
Q

Market Equilibrium

A

The balance of supply and demand

53
Q

Price Equilibrium

A

The price equating quantity demanded and quantity supplied

54
Q

Quantity Equilibrium

A

The quantity traded at the price equilibrium of a market

55
Q

Theory of Market Adjustment

A

Prices change to meet market equilibrium

56
Q

↑D

A

↑EP and EQ

57
Q

↑S

A

↓EP + ↑EQ

58
Q

Causality

A

The relation of cause and effect

59
Q

Carrying Capacity

A

No. of people the Earth’s resources can support indefinitely if its resources are efficiently managed

60
Q

Drawing Down

A

Taking or abusing natural resources that should be available for future generations

61
Q

Sustainable Development

A

Economic development accounting for the ability of future generations to meet economic, social and environmental needs

62
Q

Externality

A

Side effect of production or consumption of a good/service experienced by a third party [not involved in the trade or production]

63
Q

Positive Externality/Spillover Benefit

A

Benefit to a third party from consumption and/or production of a good or service

64
Q

Negative Externality/Spillover Cost

A

Cost suffered by a third party from consumption and/or production of a good or service

65
Q

Subsidy

A

Payment made by the government to producers or consumers on the condition of a desired outcome

66
Q

Pigouvian Tax

A

A tax levied on a method of production that causes negative externalities

67
Q

Ratcheting Mechanism

A

A Pigouvian tax steadily increasing until an external cost is reduced to an acceptable level

68
Q

Regulation and Pros

A
  • A rule maintained by an authority
  • Can prevent production of goods that lead to toxic by-products
  • Can protect critical or renewable resources
69
Q

Subsidy Pros and Cons

A
  • Pro: Increases supply of a desired good
  • Con: Producers and consumers of the good aren’t held accountable for the external cost
70
Q

Advantages of Tax

A
  • Allows the market price to reflect the external cost of production
  • Causes some producers to adopt technology that reduces external cost
  • Makes external cost efficient
71
Q

Disadvantages of Tax

A
  • Can be difficult for the government to set a tax that makes up the difference between marginal private cost and marginal social cost.
  • Does not directly prevent negative externalities from taking place
72
Q

Price Floor

A

Point beyond which price isn’t allowed to fall

73
Q

Price Ceiling

A

Point beyond which price isn’t allowed to rise

74
Q

Excise Tax

A

Tax imposed on a specific domestically produced good

75
Q

Black Market

A

A market in which products are sold illegally above the price set by law

76
Q

Efficacy of Price Floors and Ceilings

A
  • Price ceilings are effective if they are set below the price equilibrium
  • Price floors are effective if they are set above the price equilibrium
77
Q

Government Responses to Shortages and Surpluses

A

Governments may respond to shortages by rationing and to surpluses by purchasing the remainder

78
Q

Supply and Demand during Set Prices

A

Both quantity demanded and quantity supplied are based on the set price, causing a surplus for price floors or shortage for price ceilings.

79
Q

PED by point on demand curve

A

Price elasticity of demand is closer to infinity at the left of the curve and closer to 0 at the right of the curve

80
Q

The Increased Price a Consumer Pays from an Excise Tax

A

C.PriceIncrease = NewPriceEquilibrium - OldPriceEquilibrium

81
Q

The Increased Price a Producer Pays from an Excise Tax

A

P.PriceIncrease = (OldPriceEquilibrium + Tax) - NewPriceEquilibrium

82
Q

Supply Curve from Excise Tax

A

Increase in cost from excise tax directly represented by upward movement of supply curve by price.

83
Q

Market Failure

A

When a free market produces an outcome deemed unfair or inefficient

84
Q

Cons of Regulations

A
  • Regulations may still be broken if punishment or fine costs less than preventing external cost
  • Can be difficult and expensive to administer; less effecient due to their compliance being built without market pricing mechanisms
85
Q

Examples of Market Failure

A
  • Externalities
  • Income inequality
  • Abuse of monopoly power
  • Lack of public goods
86
Q

Market Disequilibrium

A

An imbalance of supply and demand

Economics SL (Year 1) - IB (5 decks)

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