Economics > unit 3 > Flashcards

unit 3 Flashcards

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1
Q

As price rises, what happens to the quantity sellers want to sell?

A

It Rises

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2
Q

As the price rises, what happens to the quantity buyers wish to buy?

A

It Falls

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3
Q

Purpose of the Graph? Supply

A

Shows how sellers would react to various prices

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4
Q

Purpose of the Graph? Demand

A

Shows how buyers would react to various prices

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5
Q

Graph

A

Construct Supply & Demand Curves

Using data on the other side

Prices = vertical y-axis

Quantities of cocoa = horizontal x-axis

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6
Q

What is the supply curve doing?

A

Upward sloping

Mean?

As price ↑, more units are supplied

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7
Q

What is the demand curve doing?

A

Downward sloping

Mean?

As price ↑, fewer units are demanded

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8
Q

What are the 3 fundamental questions of economics?

A

What to produce?

How to produce?

Who gets to consume?

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9
Q

What determines how a buyer reacts towards the price of a good?

A

How much they value…

Willing & able to pay

If value exceeds price of good

Incentive to buy

If value is less than price

No incentive to buy

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10
Q

What determines how a seller reacts towards the price of a good?

A

How much it costs to produce the good

If production cost is greater than price

No incentive to produce & sell

If production cost is less than price

Incentive to produce & sell

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11
Q

As the price of a good increases, how does the quantity demanded by buyers and the quantity of supplied by sellers change?

A

QD ↓

QS ↑

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12
Q

What did you learn?

A

Incentives of buyers & sellers

Prices for goods & services are determined in markets

Predict marking-clearing (equilibrium) price using supply and demand curve

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13
Q

What is Microeconomics?

A

Studies the decisions of individuals and firms to allocate resources of production, exchange, and consumption

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14
Q
  1. What does microeconomics primarily deal with?
A

Prices & production in single markets & the interaction between different markets but leaves the study of economy-wide aggregates to macroeconomics

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15
Q
  1. What types of models does Microeconomists formulate?
A

Logic & observed human behavior

Test the models against real-world observations

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16
Q

What is the law of supply and demand?

A

Combines two fundamental economic principles describing how changes in the price of a resource, commodity, or product affect its supply and demand

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17
Q
  1. What is the law of demand?
A

At a higher price, consumers will demand a lower quantity of a good

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18
Q
  1. What is the law of supply?
A

Higher prices boost supply of an economic good while lower ones tend to diminish it

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19
Q
  1. What is market-clearing price?
A

Balances supply and demand, and can be graphically represented as the intersection of the supply and demand curves

AKA equilibrium

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20
Q
  1. What is price elasticity?
A

The degree to which changes in price translate into changes in demand and supply

Demand for basic necessities is relatively inelastic

Less responsive to changes in their price

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21
Q

All other things being equal, there is a _ relationship between price and quantity supplied.

A

direct

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22
Q

Supply primarily concerns _

A

producers

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23
Q

Which way does the curve go?

Slopes _ – to the right

A

upward

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24
Q

What does a supply curve show?

A

How much of a good suppliers are willing and able to supply at different prices

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25
3. What is the relationship between price and quantity supplied?
Price ↑ quantity supplied ↑ Price ↓ quantity supplied ↓
26
Why does the supply curve slope upwards?
Because the only way the quantity of oil can be ↑ is to exploit higher and higher cost sources of oil
27
7. What does the curve summarize? (2)
The way suppliers respond to a change in price How suppliers will enter & exit the market
28
Supply does _ set price
NOT
29
1. Along a supply curve, if the price of oil falls, what will happen to the quantity of oil supplied?
it will decrease
30
2. If the price of cars falls, are carmakers likely to make ____.
fewer cars
31
Shift Right
What does it mean? ↑ Supply GENERALLY (Like the PPF): Shifts to the left are bad, shifts to the right are good
32
Potential Causes? shift right supply
Cost of inputs ↓ Laborers, equipment, raw materials, buildings, & capital Profit margins ↑ Business taxes ↓ or subsides ↑ Cost of production ↓ of sellers ↑ More firms means more supply The price of the product is expected to ↓ Change in Technology Produce more w/ same resources
33
Shift Left supply
↓ supply GENERALLY (Like the PPF): Shifts to the left are bad, shifts to the right are good Potential Causes? The cost of the input ↑ Business taxes ↑ or subsides ↓ Cost of production ↑ of sellers ↓ Fewer firms means less supply The price of the product is expected to ↑
34
All other things being equal, there is an _ relationship between price & quantity demanded.
inverse
35
2. Demand primarily concerns _
consumers
36
Which way does the demand curve go?
Downward slope What does the demand curve show? How much of a good people will want @ different prices
37
Quantity demanded ____________ as the price gets lower.
increases
38
Is there just one demand curve?
Heck no! Different curve for every good & service
39
If there is a high price for oil, say $55 per barrel, demand will be ___________.
low
40
High value uses?
Few substitutes
41
Low value uses?
Substitutes are readily available
42
8. At some point, what will consumers do if the cost of valued used products gets too high?
Stop buying goods Buy substitutes
43
For some consumers, the __________ of buying these products is too little to justify the ________ . b. Despite these high prices, the demanders that are left are the ones who _________ _ oil the highest because the benefit __________ the increased cost. Hence, they still __________ oil.
benefit, cost, value, outweighs, demand
44
With a simple line the demand curve summarizes all the many and diverse ways
that people respond to a change in price
45
Change in Quantity Demanded
Shift in a point along the demand curve Mean? Change in the specific quantity of a product that buyers are willing & able to buy Cause? Change in the price
46
Change in Demand
Shift of the entire curve Mean? Change consumer desire to purchase a particular good/service, regardless of price What moves it? Shift in income levels, consumer tastes, or a different price being
47
3. A market in equilibrium demonstrates 3 characteristics:
The behavior of agents is consistent There are no incentives for agents to change behavior A dynamic process governs equilibrium outcomes 4. AKA? Invisible Hand
48
What does equilibrium price (EP) mean?
Quantity Demand = Quantity Supplied (QD = QS) Where is the only place that the price is stable? Equilibrium price (EP) Forces push it there Invisible Hand
49
Who do buyers compete against?
Buyers How do they compete against them? Obtain goods by bidding higher than other buyers
50
Who do sellers compete against?
Sellers How do they compete against them? Sell goods at lower prices
51
QS > QD?
Surplus Sellers can’t sell as much Solution? Sellers lower the price Outcompete other sellers Price ↓ till QD = QS Aka Equilibrium
52
QD > QS?
Shortage Buyers can't get as much as they want Solution? Buyers bid up the price Outcompete other buyers Sellers – incentive to raise prices Price ↑ till QD = QS Aka Equilibrium
53
EP = Stable
b/c incentives of buyers & sellers push the price towards equilibrium
54
Suppliers
More will jump in Prices ↑
55
Higher-value = Buyers
Lower-value = non-Buyers
56
Lower cost = Sellers
Higher cost = Non-Sellers
57
Buyers will highest value =
buy Sellers will lowest cost = sell Gains form Trade Difference between Value of good creates & it Cost = maximized
58
At Equilibrium Quantity
Every trade that can generate value does generate value It will continue till… Value of buyers = Cost of sellers
59
What Adam Smith terms were mentioned? (2)
Invisible Hand Law of Self-Interest Promote greater good
60
6. What does not exist in a free market?
Wasteful trades Quantity exchanged > Equilibrium Quantity = waste
61
How does this graph demonstrate Adam Smith’s principal concept of economics?
Buyers & Sellers act in their own… Self-interests End up at a Price & Quantity Allocates goods to highest value buyers Produced by lowest cost sellers Promotes greatest good
62
Change in Supply Curve
Price of Factors of Production Tech Producer Expectations Price of Related Products Number of Sellers in market Government Policies
63
What is the relationship between price and quantity supplied?
There is a direct relationship between price and quantity supplied.
64
Who does it primarily concern?
Supply primarily concerns producers.
65
Which way does the curve go?
It slopes upward.
66
What does the curve show?
It shows how much of a good suppliers are willing and able to sell at varying prices.
67
Supply Curve Shifts: What does a shift to the right mean?
A shift to the right means that the quantity supplied is increasing. This is good.
68
What are some of the potential causes? - shift to right
The cost of inputs are decreasing. Business taxes are decreasing or subsidies are increasing. The number of sellers are increasing. The price of the product is expected to decrease. There is a change in technology.
69
What does a shift to the left mean?
A shift to the left means that the quantity supplied is decreasing. This is bad.
70
What are some of the potential causes? - shift to left
The cost of inputs is increasing. Business taxes are increasing, or subsidies are decreasing. The number of sellers is decreasing. The price of the product is expected to increase.
71
What is the relationship between price and quantity demanded?
There is an inverse relationship between price and quantity demanded.
72
Who does demand primarily concern?
Demand primarily concerns consumers.
73
Which way does the curve go demand
The curve slopes downward.
74
What is the difference between a high-value and low-value uses?
High value uses are uses for which items have few substitutes while low-value uses are when there are substitutes available for an item.
75
At some point, what will consumers do if the cost of valued used products gets too high?
They may buy substitutes or may not buy an item at all.
76
Despite high prices, why will some consumers stay in the market?
They may value the product higher than other people, and for them the benefit would outweigh the costs. So, they still demand the products.
77
Demand Changes: What does it mean & what causes a change in quantity demanded?
A change in quantity demanded means that there is a change in the specific quantity of a product that buyers are willing and able to buy. It is caused by a change in price.
78
What does it mean & what causes a change in demand?
A change in demand is the change in consumer desire to purchase a particular good and service regardless of price. It can be caused by various factors but not price. This includes trends, quality of the product, shift in income levels, or a different price being charged for a related product.
79
What determines the price?
Intersection of supply & demand
80
What does equilibrium price (EP) mean?
The behavior of agents is consistent, there are no incentives for agents to change behavior, and it is a dynamic process that governs equilibrium outcomes
81
Who do buyers and sellers compete against?
Buyers compete against other buyers while sellers compete against other sellers
82
What does a surplus mean?
It means the quantity supplied is greater than the quantity demanded.
83
What does a shortage mean?
It means the quantity demanded is greater than the quantity supplied.
83
How does price reach equilibrium? surplus
Sellers can lower the price more and more until equilibrium
84
How does price reach equilibrium? shortage
Buyers can bid up the price and sellers can raise price until equilibrium.
85
What does not exist in a free market?
There are no wasteful trades.
86
How does the supply and demand graph demonstrate Adam Smith’s principal concept of economics?
The supply and graph demonstrate Adam Smith’s principal concept of economics through law of self-interest and invisible hand. Buyers & Sellers act in their own self-interests. They end up at a Price & Quantity. Allocates goods to highest value buyers. Produced by lowest cost sellers. Promotes greatest good
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