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Microeconomics > Ch 2. Competitive Markets: Demand and Supply > Flashcards

Ch 2. Competitive Markets: Demand and Supply Flashcards

1
Q

Market

A

Any kind of arrangement where buyers and sellers of a particular good, service or resource are linked together to carry out an exchange

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2
Q

Competition

A

process in which rivals compete in order to achieve some objective

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3
Q

Competitive Markets

A

large numbers of sellers and buyers acting independently, so that no one individual seller of small group of sellers has the ability to control the price of the product sold

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4
Q

Demand

A

Indicates the various quantities of a good that consumers are willing and able to buy at different possible prices during a particular time period, ceteris paribus

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5
Q

Demand Curve

A

Curve showing the relationship between the price of a good and the quantity of the good demanded, ceteris paribus

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6
Q

Law of Demand

A

there is a negative relationship between the price of a good and quantity of the good demanded, over a particular time period, ceteris paribus (as P increases, QD falls, vice versa)

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7
Q

Market Demand

A

Sum of all individual demands for a good

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8
Q

Non-price determinants of demand

A

Variables that can influence demand, and that determine the position of any demand curve, a change in any determinant of demand causes a shift of the demand curve

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9
Q

Increase in demand

A

Rightward shift

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10
Q

Decrease in demand

A

Leftward shift

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11
Q

Normal Good

A

demand for it increases in response to an increase in consumer income

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12
Q

Inferior good

A

Demand falls as consumer income increases

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13
Q

Substitute

A

Two goods that satisfy a similar need

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14
Q

Complementary Goods

A

tend to be used together (ketchup and hotdogs)

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15
Q

Quantity Demanded

A

Movement on the demand curve

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16
Q

Utility

A

Satisfaction that consumers gain from consuming something

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17
Q

Law of diminishing marginal utility

A

As consumption of a good increases, marginal utility, or the extra utility the consumer receives, decreases with each additional unit consumed

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18
Q

Substitution Effect

A

There is an inverse relationship between price and QD

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19
Q

Income Effect

A

As P falls real income increases

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20
Q

Supply

A

Various quantities of a good a firm is willing and able to produce and supply to the market for sale at different possible prices, during a particular time period, ceteris paribus

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21
Q

Supply Curve

A

A curve showing the relationship between the price of a good and the quantity of the good supplied, ceteris paribus

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22
Q

Law of Supply

A

There is a positive relationship between the quantity of a good supplied over a particular time period and its price, ceteris paribus

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23
Q

Market Supply

A

Sum of all individual firms’ supplies for a good.

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24
Q

Non-Price Determinants of Supply

A

The variables that can influence supple, and that determine the position of a supply curve

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25
Q

Competitive Supply

A

2 goods compete with each other for the same resources

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26
Q

Join Supply

A

Production of goods that are derived from a single product, so that it is not possible to produce more of one without producing more of the other

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27
Q

Subsidy

A

Payment made to the firm by the government, and so has the opposite effect of a tax

28
Q

Quantity Supplied

A

Movement on the supply curve

29
Q

Increase in supply

A

Rightward Shift

30
Q

Decrease in Supply

A

Leftward Shift

31
Q

Short Run

A

Time period during which at least one input is fixed and cannot be changed by the firm

32
Q

Long Run

A

Time period when all inputs can be changed

33
Q

Marginal Product

A

Extra of additional output produced by one additional unit of a variable input

34
Q

Law of Diminishing Marginal Returns

A

more units of a variable input are added to one or more fixed inputs, the marginal product of the variable input at first increases, but there comes a point when it begins to decrease

35
Q

Total Cost

A

all costs of production incurred by a firm

36
Q

Marginal Cost

A

Extra or additional cost of producing one more unit of output

37
Q

Marginal product and Marginal returns

A

When marginal product increases, Marginal cost decreases. WHen MP is max, MC is min, when MP falls, MC increases

38
Q

Excess Supply/surplus

A

Excess of something over something else to which it is being compared

39
Q

Excess demand/ shortage

A

Amount by which quantity demanded is greater than quantity supplied

40
Q

Equilibrium

A

State of balance between different forces, such that there is no tendency to change

41
Q

Market Equilibrium

A

QD = QS

42
Q

Competitive Market Equilibrium

A

QD = QS, and there is no tendency for the P to change

43
Q

Allocative Efficiency

A

Producing the quantity of goods mostly wanted by society

44
Q

Marginal Benefit

A

Extra or additional benefit received from consumer one more unit of a good

45
Q

Consumer Surplus

A

Defined as the highest price consumers are willing to pray for a good minus the price actually parid

46
Q

Producer Surplus

A

Price received by firms for selling their good minus the lowest price that they are willing to accept to produce the good

47
Q

Social Surplus

A

Sum of consumer and producer surplus, it is maximum in a competitive market with no market failures

48
Q

Welfare

A

amount of consumer and producer surplus. when MB = MC, social welfare is maximum

49
Q

Consumer surplus

A

((P intercept of D curve - P of consumers) X QPurchased) / 2

50
Q

Producer Surplus

A

((P of producers - P intercept of S curve) x Q sold) / 2

51
Q

Area of a Trapezium

A

((a+b) x c) / 2

52
Q

Welfare Loss

A

Social welfare is no longer maximum on account of a portion of it being lost

53
Q

Rational Consumer Choice

A

Make choices on what to buy based on assumptions:

  1. choices are consistent
  2. They have perfect information
  3. They try to max utility
54
Q

Biases

A

Refers to systematic errors in thinking or evaluating

55
Q

Rules of Thumb

A

guidlines based on experience

56
Q

Anchoring

A

Use of irrelevant information to make decisions

57
Q

Framing

A

How choices are presented to decision-makers

58
Q

Availability

A

Information that is most recently available

59
Q

Bounded Rationality

A

Consumers are rational only within limits

60
Q

Bounded Self-Control

A

People in reality exercise self-control only within limits

61
Q

Bounded Selfishness

A

People are selfish only within limits

62
Q

Nudge

A

method designed to influence consumers’ choices in a predictable way

63
Q

Default Choice

A

doing the option that results when one does not do anything

64
Q

Restricted Choice

A

limited by the government or other authority

65
Q

Mandated Choice

A

Choice between alternatives that is made mandatory by the government or other authority

66
Q

Rational Producer Behavior

A

firm tries to maximise profit

67
Q

Market Share

A

Percentage of total sales in a market that is earned by a single firm

Microeconomics (7 decks)

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