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Intro to Micro > Chapter 4 > Flashcards

Chapter 4 Flashcards

1
Q

Market

A

a group of economic agents who are trading a good or service, and the rules and arrangements for trading.

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2
Q

Do markets need a physical location?

A

no.

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3
Q

Examples of markets:

A

okcupid.com, Central philadelphia flower market, gasoline market

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4
Q

market price

A

if all sellers and buyers face the same price, the price is referred to as the market price.

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5
Q

Conditions for a perfectly competitive market

A

1) sellers all sell an identical good or service
2) any individual buyer isn’t powerful enough on his or her own to affect the market price.
3) perfect information, no transaction costs

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6
Q

A perfectly competitive market implies that buyers and sellers are:

A

price-takers

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7
Q

price-takers

A

buyers and sellers accept the market price. Buyers can’t bargain for a lower price and sellers can’t bargain for a higher price.

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8
Q

Are markets perfectly competitive in the real world?

A

Almost always no.

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9
Q

Why study perfectly competitive markets?

A

Most markets in the real world are close to being perfectly competitive. Thus perfectly competitive markets serve as a good model (or approximation) for how the real world works.

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10
Q

Quantity demanded

A

The amount of a good that buyers are willing to purchase at a given price.

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11
Q

Demand schedule

A

A table that shows the quantity demanded at different prices, holding all else equal.

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12
Q

Holding all else equal

A

Ceteris paribus - assumes that everything else in an economy is held constant.

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13
Q

Demand curve

A

Plots the quantity demanded at different prices. Essentially plots the demand schedule.

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14
Q

X and y axis conventions of demand curve

A

x axis - quantity demanded

y axis - price

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15
Q

negatively related

A

variables move in opposite direction

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16
Q

Law of Demand

A

In almost all cases, quantity demanded rises when the price falls (ceteris paribus) - holding all else equal

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17
Q

One extra item of something is called

A

the marginal item

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18
Q

willingness to pay

A

The highest price that a buyer is willing to pay for an additional unit of a good.

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19
Q

Diminishing marginal benefit

A

As you consume more of a good, your willingness to pay for an additional unit of the good declines.

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20
Q

What do all individual demand curves have in common?

A

They are downward sloping. They have little in common besides this (magnitude of slopes are different).

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21
Q

How do you study global demand of a good?

A

Add up all the individual demand curves, through a process known as aggregation.

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22
Q

How do you aggregate demand schedules?

A

At each price, add up the quantity demanded by each person.

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23
Q

Difference between real world demand curves and economists’ demand curves

A

Real world demand curves don’t tend to be straight lines.

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24
Q

Market demand curve

A

Sum of the individual demand curves of all the potential buyers. Plots the relationship between the total quantity demanded and the market price, holding all else equal.

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25
Q

Number of gallons per barrel of oil

A

42

26
Q

Demand curve shifts when these major factors change:

A

1) tastes and preferences
2) income and wealth
3) availability and prices of related goods
4) number and scale of buyers
5) buyers’ beliefs about the future

27
Q

tastes and preferences

A

What we like, enjoy, or value.

28
Q

Left shift

A

Shift of demand curve to the left - less quantity demanded at every price. Opposite of right shift

29
Q

The demand curve only shifts when:

A

Quantity demanded increases or decreases at a given price.

30
Q

The demand curve does not shift when:

A

Only the price of a good changes.

31
Q

movement along the demand curve

A

Only happens when a good’s own price changes and the demand curve has not shifted.

32
Q

normal good

A

an increase in income causes the demand curve to shift to the right (holding that the good’s price is fixed).

33
Q

inferior good

A

an increase income causes the demand curve to shift to the left (holding that the good’s price is fixed).

34
Q

substitute goods

A

Two goods are substitute goods when a fall in the price in one causes the demand curve of the other to shift to the left.

35
Q

Complement goods

A

Two goods are complement goods when a fall in the price in one causes the demand curve of the other to shift to the right.

36
Q

quantity supplied

A

The amount of a good or service that suppliers are willing to sell at a given price.

37
Q

Supply schedule

A

A table that reports the quantity supplied at different prices, holding all else equal.

38
Q

Supply curve slope

A

positive (upward sloping)

39
Q

Supply curve

A

plots the quantity supplied at different prices. Essentially plots the supply schedule.

40
Q

positively related

A

Two variables are positively related when they move in the same direction.

41
Q

Law of Supply

A

In almost all cases, the quantity supplied rises when the price rises (holding all else equal).

42
Q

height of the supply curve is:

A

a firm’s marginal cost. A firm is willing to accept a price equivalent to the height of the supply curve to produce another unit of that good.

43
Q

willingness to accept

A

The lowest price a seller is willing to be paid to sell an extra unit of a good. Equivalent to the marginal cost of production.

44
Q

market supply curve

A

Sum of the individual supply curves of all the potential sellers. Plots the relationship between total quantity supplied and the market price, holding all else equal.

45
Q

Major variables that shift the supply curve

A

1) Prices of inputs used to produce the good
2) Technology used to produce the good
3) Number and scale of sellers
4) Sellers’ beliefs about the future.

46
Q

input

A

A good or service used to produce another good or service.

47
Q

If a good’s own price has shifted and all else is held equal, what happens?

A

Supply curve doesn’t shift. Instead, a movement along the supply curve occurs.

48
Q

Increase in the price of inputs leads to what?

A

Left shift in supply curve.

49
Q

Decrease in the number and scale of sellers leads to what?

A

Left shift in supply curve.

50
Q

Sellers believe that future sells of a good will skyrocket. (like a forecasted especially cold winter) What happens?

A

Left shift in supply curve now.

51
Q

How do competitive markets price a good?

A

A competitive market picks a price where the quantity supplied = quantity demanded.

52
Q

Graphical interpretation for how competitive markets price a good:

A

The price of a good is where the supply curve intersects the demand curve.

53
Q

Competitive equilibrium price

A

price that equates quantity supplied and quantity demanded.

54
Q

Competitive equilibrium quantity

A

Quantity that corresponds to the competitive equilibrium price.

55
Q

Competitive equilibrium

A

Intersection between supply and demand curves.

56
Q

Competitive equilibrium price is also referred to as:

A

the market clearing price.

57
Q

excess supply

A

When the quantity supplied exceeds quantity demanded - when the market price is above the competitive equilibrium price.

58
Q

excess demand

A

When the quantity demanded exceeds the quantity supplied - when the market price is below the competitive equilibrium price.

59
Q

When both the demand and supply curves shift to the left, what happens to the competitive equilibrium price?

A

May increase, decrease, or stay the same.

60
Q

When both the demand and supply curves shift to the left, what happens to the competitive equilibrium quantity?

A

Always decreases.

61
Q

Do price controls work?

A

No, creates excess supply or demand.

62
Q

In case of price controls, what controls allocation?

A

Quota mechanisms determine allocation - black markets, lines, inefficient

Intro to Micro (8 decks)

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