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Econ > Unit Two > Flashcards

Unit Two Flashcards

1
Q

Homogenous

A

Products that are exactly the same (ex. salt, gold)

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2
Q

Heterogenous

A

Products that are differentiated (ex. Coke v Pepsi)

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3
Q

How do you know if a market is competitive

A

People could buy elsewhere

Price starts to hover around a certain value

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4
Q

Why do competitive markets work

A

Many buyers and sellers
Product is the same
Information known by all

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5
Q

Supply and demand graph (key factors)

A

Price is on the y axis, quantity is on the x axis
Quantity is dependent on price
Slope = run/rise

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6
Q

Endogenous variable

A

A variable that is inside the model (ex. price)

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7
Q

Exogenous variable

A

A variable that is outside the model (ex. technology)

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8
Q

What determines the value of a good

A 
Quality
How much people want it
Scarcity
Competition
Production costs
Need
Process
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9
Q

Quantity demanded

A

The amount consumers are willing and able to purchase at a given price
Quantity demanded and price have a negative relationship

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10
Q

Demand curve

A

Price on y axis, quantity on x axis, demand = downward sloping line

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11
Q

Law of demand

A

Quantity demanded decreases when price increases

Quantity demanded increases when price decreases

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12
Q

Why the demand curve is downward sloping

A

Income effect, substitution effect, marginal utility per dollar

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13
Q

Income effect

A

As prices rise, consumers can not afford to buy as much

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14
Q

Substitution effect

A

As prices rise, consumers buy substitutes

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15
Q

Marginal utility per dollar

A

As prices rise, consumers can get less marginal utility per dollar (value)

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16
Q

Determinants of demand

A

Non-price things affect people’s willingness and ability to pay (exogenous variables)
Things that will shift the demand curve
Changes in preferences, income, population, substitute goods, complements, expectations of consumers

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17
Q

Shifts in quantity demanded

A

Caused by change in price (usually due to a shift in supply)

Go from one point on the demand curve to another point on the demand curve

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18
Q

Shifts in demand

A

Caused by determinant (from list)

Whole line of demand shifts to the right or left

19
Q

Quantity supplied

A

The amount producers are willing and able to produce and sell at a given price
Quantity supplied and price have a positive relationship

20
Q

Supply curve

A

Price on y axis, quantity supplied on x axis, upward sloping line

21
Q

Law of supply

A

Quantity supplied increases when price increases

Quantity supplied decreases when price decreases

22
Q

Determinants of supply

A

Non-price things that encourage/discourage suppliers (exogenous variables)
Change in technology, input prices (marginal cost), producer expectations, prices of other goods, government policies (subsidies), number of suppliers, the production of a jointly-produced good (ex. beef and leather)

23
Q

Subsidy

A

Financial assistance to a business

Most subsidies are given by the government (corn, education, etc.)

24
Q

Tax

A

Increase price, sin tax

25
Q

Shifts in quantity supplied

A

Caused by change in price (usually due to a shift in demand)
Endogenous
Goes from one point on the supply curve to another point on the supply curve

26
Q

Shifts in supply

A

Caused by determinant
Exogenous
Entire supply line moves left or right

27
Q

Equilibrium

A

The point where supply = demand is known as the equilibrium
This point corresponds to the “equilibrium price” and “equilibrium quantity”
The equilibrium price and equilibrium quantity are socially optimal/allocatively efficient
At equilibrium quantity, quantity demanded = quantity supplied

28
Q

Socially optimal

A

Best for society, can sell and buy goods at equilibrium price

29
Q

Allocatively efficient

A

Resources distributed and used without waste, supply = demand, perfect amount of good

30
Q

In a free market

A

If quantity supplied is greater than quantity demanded then price will fall until it hits equilibrium
If quantity demanded is greater than quantity supplied then price will rise until it hits equilibrium

31
Q

Synonyms for equilibrium price

A

Market clearing price
Market price
Socially optimal price

32
Q

Shifts

A

Any shift in supply and/or demand can change the equilibrium price and/or quantity
A shift in supply causes a change in quantity demanded (and vice versa)

33
Q

Increase

A

Rightward shift

34
Q

Substitutes

A

Two goods that provide similar purpose or utility (ex. nalgene and camelbak)

35
Q

Complements

A

Two goods that are consumed together (ex. peanut butter and jelly)

36
Q

Normal good

A

Any good for which consumption increases as people’s income increases (ex. fresh fruit)

37
Q

Inferior good

A

Any good for which consumption increases as people’s income decreases (ex. Ramen)

38
Q

Joint production

A

Two goods that are produced together
Usually a function of a byproduct
Ex. sugar and molasses, beef and leather
Quantity supplied of one good increases —> supply of the other good increases

39
Q

Giffen good

A

A good where consumption increases as price rises, defies law of demand
If price goes up so does quantity demanded, because the income effect > substitution effect

40
Q

Synonym for indeterminate

A

Ambiguous

41
Q

Increase in demand, increase in supply

A

Price ambiguous, quantity increase

42
Q

Demand increase, supply decrease

A

Price increase, quantity ambiguous

43
Q

Demand decrease, supply increase

A

Price decrease, quantity ambiguous

44
Q

Demand increase, supply decrease

A

Price indeterminate, quantity decrease

Econ (14 decks)

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