Week 2 Flashcards
Define a demand curve
A demand curve is a function that shows the quantity demanded at different prices.
Define the quantity demanded
The quantity demanded is the quantity that buyers are willing and able to buy at a particular price.
Define Consumer surplus
Consumer surplus is the consumer’s gain from the exchange or the difference between the maximum price a customer is willing to pay for a certain quantity and its market price.
Define the total consumer surplus
The total consumer surplus is measured by the area beneath the demand curve and above the price
An ______ in demand shifts the demand curve outward, up and to the right. A ______ in demand shifts the demand curve inward, down and to the left.
increase; decrease
Name important demand shifters
- Income
- Population
- Price of substitutes
- Price of complements
- Expectations
- Tastes
Define the supply curve
The supply curve is a function that shows the quantity supplied at different prices.
Define the ‘law of supply’
The higher the price, the greater the quantity supplied.
Define the ‘law of demand’
The lower the price, the greater the quantity demanded
Explain ‘producer surplus’
Producer surplus is the producer’s gain from the exchange or the difference between the market price at which a producer would be willing to sell a particular quantity.
What shifts the supply curve?
Economists say that a decrease in costs increase supply. Higher costs mean that the supply curve shifts in the opposite direction.
Name some important supply shifters
- Technological innovations and changes in price inputs
- Taxes and subsidies
- Expectations
- Entry or exit of producers
- Changes in opportunity costs
The price at the meeting point (supply and demand), is called the…
… equilibrium price.
The quantity at the meeting point is called the…
… equilibrium quantity
What’s the “Invisible hand”, according to Adam Smith
Economic forces in a free market will always push and pull prices towards their equilibrium values.
Define surplus in the context of demand/supply
A surplus is a situation in which the quantity supplied is greater than the quantity demanded
Define a shortage in the context of demand/supply
A shortage is a situation in which the quantity demanded is greater than the quantity supplied (the price is below the equilibrium price).
What happens when theres a shortage in the market?
Sellers will raise prices. As prices are pushed up, the quantity supplied increases and the quantity demanded decreases until there is no longer an incentive for prices to rise.
Define the equilibrium price
The equilibrium price is the price at which the quantity demanded is equal to the quantity supplied.
When we say that the free market maximizes the gains from trade, we mean three closely related things:
- The supply of goods is bought by the buyers with the highest willingness to pay
- The supply of goods is sold by the sellers with the lowest costs
- Between buyers and sellers, there are no unexploited gains from trade and no wasteful trades
Define marketing
The set of activities and processes for creating/ communicating offerings that have a value for customers and clients etc.
A product’s marketing strategy consists of the 4 P’s:
- Product
- Price
- Place
- Promotion
Define cognitive dissonance
We create tricks to not change our behaviors
Describe the paradox of choice
Too much choice - leads to cognitive overload - stress - pre-choice confusion - post-choice uncertainty (regret maybe)
