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MICROECONOMICS > DEMAND AND SUPPLY > Flashcards

DEMAND AND SUPPLY Flashcards

1
Q

Law of Demand is Downward Sloping for 3 Reasons

A

Substitution Effect
Income Effect
Law of Diminishing Marginal Utility

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2
Q

What Can SHIFT Demand Curve

A

-Tastes and Preferences
-Number of Consumers
-Price of Related Goods
-Income
-Future Expectations (income & credit)

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3
Q

What causes movement along Demand curve

A

Changes in PRICE

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4
Q

Normal Good

A

When income increases demand for this good INCREASES

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5
Q

Inferior Good

A

As income increases, demand for this good DECREASES

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6
Q

Substitutes

A

Can be used in place of another good
The closer the substitute of a good = Greater Elasticity of Demand

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7
Q

Complements

A

A good consumed TOGETHER with other good

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8
Q

Law of Supply

A

Direct (Positive/Upward slope) relationship between price and quantity supplied

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9
Q

If a substitute good increases its prices:

A

Demand for other good INCREASES

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10
Q

If a COMPLEMENT good increases its prices:

A

Demand for original good DECREASES

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11
Q

Supply

A

Different quantities of good that sellers are willing and able to sell at different prices

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12
Q

Shifters of Supply Curve

A

Price/Availability of Factors of Production
Price of related goods produced
Number of Sellers
Technology
State of Nature
Expectations of Future Profit

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13
Q

What causes movement along Supply Curve

A

Price

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14
Q

4 Types of Elasticity

A

Elasticity of Demand
Elastiticy of Supply
Cross Price Elasticity
Income Elasticity

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15
Q

What does Elasticity show

A

How sensitive quantity is to a change in price

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16
Q

Equation: Price Elasticity of Demand

A

% Change in Quantity Demanded/ % Change in Price

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17
Q

Equation: Price Elasticity of Supply

A

% Change in Quantity Supplied/ % Change in Price

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18
Q

Equation: Cross Price Elasticity

A

% Change in Quantity of good A/ % Change in Price of good B

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19
Q

Equation: Income Elasticity

A

% Change in Quantity/ % Change in Income

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20
Q

What does the Curve look like if Demand is Highly Elastic

A

More flat: Small Change in Price = High Change in Demand (Quantity)
Very Sensitive

21
Q

What does the Curve looks if Demand is Highly Inelastic

A

More Vertical: Change in Price does not affect the Demand (Quantity) by much
Big Change in Price = Small Change in Quantity
Minimally sensitive

22
Q

Unit Elasticity

A

% Change in Price = Exact same % Change in Demand (or Supply)

23
Q

Elasticity Values

A

0=Perfectly Inelastic
<1=InElastic
1=Unit Elastic
>1=Elastic
Infinity (Horizontal) = Perfectly Elastic

24
Q

Total Revenue Test

A

Price Increase = TR Increase: Inelastic Demand
Price Increase = TR Decrease: Elastic Demand
Price Change = TR Unchanged: Unit Elastic Demand

25
Q

Consumer Surplus

A

Difference between what you are willing to pay and what you actually pay

26
Q

Producer Surplus

A

Difference between price the seller received vs how much they are willing to sell it for

27
Q

Total Surplus

A

Consumer Surplus + Producer Surplus: When this is maximized market is efficient

28
Q

The Price at which the quantity demanded equals the quantity supplied is the equilibrium price because:

A

the plans of Producers and Consumers are coordinated and there is no influence on the price to change

29
Q

What happens to Price & Quantity if Demand Increases

A

Price Increases
Quantity Increases

30
Q

What happens to Price & Quantity if Supply Decreases

A

Price Increases
Quantity Decreases

31
Q

What happens to Price & Quantity if Supply Increases

A

Price Decreases
Quantity Increases

32
Q

What happens if both Supply and Demand curves Shift

A

Either Price or Quantity will be Indeterminant

33
Q

Market Equilibrium

A

Quantity Demand = Quantity Supplied

34
Q

Relative Price

A

Ratio of 1 price of a good to price of another good
A good’s price relative to all other goods
The opportunity cost of an item

35
Q

Law of Demand

A

Other things remaining equal-if a price of a good rises, the demand decreases and if a price of a good falls, the demand increases

36
Q

Law of Supply

A

All other things remaining equal: higher the price of a good, the greater quantity supplied, the lower price of a good, the lower quantity supplied

37
Q

Equilibrium

A

Buyers pay highest price they are willing
Sellers sell at lowest price they are willing

38
Q

Marginal Cost

A

Additional Cost to produce 1 additional unit

39
Q

If Supply and Demand Change in the Same Direction

A

Quantity Changes but Price is Indeterminant

40
Q

If Supply and Demand Change in Opposite Direction

A

Price will Change/ Quantity Indeterminant

41
Q

Money Price

A

Number of dollars that are given up for a good

42
Q

Demand Schedule

A

Lists quantities demanded at different prices

43
Q

Minimum Supply Price Curve

A

Lowest price at which someone is willing to sell
Marginal Cost

44
Q

Q* Equation

A

a-c/b+d

45
Q
A
46
Q

Decrease in Demand+ Decrease in Supply

A

May create surplus or shortage
Price: may fall, rise or not change

47
Q

Decrease in Demand + Decrease in Supply

A

Equilibrium Quantity DECREASES

48
Q

EQUATION: Price Equilibrium

A

P=a-bQ*
so figure out Q* first
Q= a-bQ=c+dQ*

49
Q

EQUATION: Quantity Equilibrium

A

a-bQ=c+dQ
=a-c=(b+d)Q*
=a-c/(b+d)=Q*

MICROECONOMICS (22 decks)

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