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ECO 3101: Intermediate Price Theory > Chapter 2: Concepts/ Theory > Flashcards

Chapter 2: Concepts/ Theory Flashcards

1
Q

Quantity Demanded+ Formula

A

amount of a good or service consumers are willing to purchase during a given period of time
Q= f(P,M,Pr,T,Pe,N)

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2
Q

Normal good

A

an increase in income results in more of the good purchased

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3
Q

Inferior good

A

an increase in income results in less of the good purchased

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4
Q

Substitute good

A

an increase in price results in demand rising for the other good

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5
Q

Complement good

A

an increase in price results in demand falling for the other good

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6
Q

Slope parameters

A

parameters in a linear function that measure the effect on the dependent variable (Qd) of changing the independent variables (P,M,Pr,T,Pe,N)

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7
Q

Variable P’s relation to Q and sign of slope parameters

A

Inverse
Negative

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8
Q

Variable M’s relation to Q and sign of slope parameters

A

For normal goods: Direct, positive
For inferior goods: Inverse, negative

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9
Q

Variable Pr’s relation to Q and sign of slope parameters

A

For substitute goods: Direct, positive
For complement goods: Inverse, negative

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10
Q

Variable T’s relation to Q and sign of slope parameters

A

Direct
Positive

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11
Q

Variable Pe’s relation to Q and sign of slope parameters

A

Direct
Positive

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12
Q

Variable N’s relation to Q and sign of slope parameters

A

Direct
Positive

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13
Q

Direct demand function+ Formula

A

visualizations that show how quantity demanded relates to product price, holding all other factors constant
Qd= f(P)

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14
Q

Inverse demand function+ Formula

A

when price is expressed as a function of quantity demanded
P= f(Qd)

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15
Q

Law of demand

A

quantity demanded increases as price falls, and quantity demanded decreases as price rises

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16
Q

Change in quantity demanded vs. Change in demand

A

Qd: change in P (price), movement along the demand curve
D: change in M, Pr, T, Pe, or N (anything other than price), shifting demand curve

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17
Q

Quantity supplied+ Formula

A

amount of a good or service offered for sale during a given period of time
Qs= f(P,Pi,Pr,t,Pe,F)

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18
Q

Subsitutes in production

A

an increase in the price of one good causes producers to increase the production of that good and decrease production of the other

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19
Q

Complements in production

A

an increase in the price of one good causes producers to increase the production of both goods

20
Q

What is Pi? (Qs)

A

price of inputs

21
Q

What is t? (Qs)

A

technology

22
Q

What it T? (Qd)

A

time

23
Q

What is F? (Qs)

A

number of firms in the industry

24
Q

What is Pe?

A

price expectations

25
Q

What is Pr?

A

price of a related good

26
Q

What is N? (Qd)

A

number of consumers in the market

27
Q

What is M? (Qd)

A

income

28
Q

Direct supply function+ Formula

A

quantity supplied expressed by changes in price
Qs= f(P)

29
Q

Change in quantity supplied vs. Change in supply

A

Qs: movement along the supply curve caused by a change in price
S: shifting the supply curve as a result in changes in Pi, Pr, t, Pe, or F

30
Q

Inverse supply function

A

price as expressed as a function of quantity supplied
P= f(Qs)

31
Q

Supply price

A

minimum price necessary to induce producers to offer a given quantity for sale

32
Q

Market equilibrium

A

quantity supplied and demanded where consumers can take all they want and producers can supply all they want
Qd= Qs

33
Q

Surplus

A

when Qs exceeds Qd

34
Q

Shortage

A

when Qd exceeds Qs

35
Q

Economic value

A

maximum price a buyer is willing to pay for a unit

36
Q

Consumer surplus

A

difference between economic value and market price, net gain of the consumer

37
Q

Producer surplus

A

difference between market price and supply price, net gain of the producer

38
Q

Social surplus

A

sum of producer and consumer surplus, the area below the demand curve and above the supply curve on a graph

39
Q

What happens when D increases and S stays constant?

A

equilibrium price and quantity both rise

40
Q

What happens when D decreases and S stays constant?

A

equilibrium price and quantity both fall

41
Q

What happens when S increases and D stays constant?

A

equilibrium price falls and quantity rises

42
Q

What happens when S decreases and D stays constant?

A

equilibrium price rises and quantity falls

43
Q

Indeterminate

A

unpredictable changes in equilibrium price and quantity when both D and S shift at the same time

44
Q

Price ceiling+ what it causes

A

maximum price the government permits sellers to charge for a good or service, can cause shortages

45
Q

Price floor+ what it causes

A

minimum price the government permits sellers to charge for a good or service, can cause surpluses

ECO 3101: Intermediate Price Theory (9 decks)

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