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Chapter 4: Supply and Demand Flashcards

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1
Q

What is a market?

A

A group of buyers and sellers of a particular good or service

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2
Q

What do buyers determine for a product?

A

The demand

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3
Q

What do sellers determine for a product?

A

The supply

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4
Q

What is an example of a centralized market?

A

An actual market

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5
Q

What is an example of a decentralized market?

A

All the sellers and buyers of ice cream in a particular town.

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6
Q

What is a competitive market?

A

A market in which there are many buyers and many sellers so the each has a negligible impact on the market price.

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7
Q

What are the two characteristics of a perfectly competitive market?

A

1) Goods offered for sale are all exactly the same
2) The buyers and sellers are so numerous that no single buyer or seller has any influence over the market price

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8
Q

Buyers and sellers in perfectly competitive markets must accept the price that the ______ determines

A

market

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9
Q

What is an example of a perfectly competitive market?

A

Market for wheat or agricultural goods

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10
Q

What is an example of a monopoly?

A

Local cable television

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11
Q

What is a monopoly?

A

A market with one seller who sets the price

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12
Q

What is the quantity demanded of a good?

A

Amount of the good that buyers are willing and able to purchase

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13
Q

What is the law of demand?

A

The claim that, other things equal, the quantity demanded of a good falls when the price of the good rises.

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14
Q

What is the demand schedule?

A

A table that shows the relationship between the price of a good and the quantity demanded

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15
Q

What is the demand curve?

A

a graph of the relationship between the price of a good and the quantity demanded

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16
Q

What is market demand?

A

The sum of all the individual demands for a particular good or service

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17
Q

How do you calculate market demand?

A

Add up the demand of each curve horizontally at every price

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18
Q

What does the market demand curve show?

A

How the total quantity demanded of a good varies as the price of a good rises, while all other factors that affect how much customers want to buy are held constant

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19
Q

Any change that increases the quantity demanded at every price is called an

A

increase in demand

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20
Q

Any change that increases the quantity demanded at every price is called a

A

Increase in demand

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21
Q

What variables shift the demand curve?

A

1) Income
2) Prices of related goods
3) Tastes
4) Expectations
5) Number of buyers

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22
Q

What is a good for which, other things equal, an increase in income leads to an increase in demand.

A

a normal good

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23
Q

An inferior food is a good for which, other things equal, and increase in ____ leads to a decrease in _____

A

Income; demand

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24
Q

When the fall of the price in one good reduces the demand for another good, the two goods are

A

substitutes

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25
Raising the price of one good will increase or decrease the demand for a substitute?
Increase
26
Raising the price of a good will increase or decrease the demand for a complement
decrease
27
What are complements?
Two goods for which an increase in the price of one leads to a decrease in the demand for the other.
28
What is the most obvious determinant of demand (not quantity demanded)
Tastes
29
Why do economists not try to explain people's tastes?
Because they are based on forces beyond the realm of economics
30
How do expectations about the future affect demand for a good?
If we expect prices to rise in the future, we might buy more of a good. If we expect prices to fall, we might buy less of a goof.
31
How does the number of buyers affect demand?
It increases the quantity demanded at every price
32
What is the only variable that creates a movement along the demand curve.
The price of the good itself
33
A curve shifts when there is...
a change in a relevant variable that is not measured on either axis.
34
A change in price represents a movement....
along the demand curve.
35
A change in expectations results in a ...
shift of the demand curve.
36
What are two ways that policymakers can reduce the quantity of smoking demanded.
Warnings on packages (education) or a tax
37
A smoking education campaign affects the demand curve how?
It shifts the demand curve to the left, to a lower price at the same quantity
38
A tax on cigarettes affects the demand curve how?
It results in a movement along the demand curve to an increased price and reduced quantity.
39
Are tobacco and marijuana complements or substitutes? What is the implication for policy?
They appear to be complements; lower cigarette prices are correlated with greater marijuana use.
40
Will the departure of college students shift the demand curve for pizza to the right?
No; likely to the left.
41
Pasta Is an inferior good, then the demand curve shifts to the ___ when ____ rises
Left; consumer's income
42
What's is quantity supplied?
The amount of a good that sellers are willing and able to sell
43
What is the law of supply?
The claim that, other things equal, the quantity supplied of a good rises when the price of a good rises.
44
What is the supply schedule?
A table that shows the relationship between the price of a good and the quantity supplied.
45
A graph of the relationship between the price of a good and the quantity supplied is called...
a supply curve
46
How do you calculate the market supply?
Sum the individual supply curves horizontally for each price.
47
Any change that raises the quantity supplied at every price is called
an increase in supply
48
What is a decrease in supply?
A change that reduces the quantity supplied at every price, which shifts the supply curve to the left.
49
Any change that raises the quantity that sellers wish to produce at a given price does what to the supply curve?
Shifts to the right.
50
What four variables shift the supply curve?
1) Input prices 2) Technology 3) Expectations 4) Number of sellers
51
What variable change represents a movement along the supply curve?
Number of sellers.
52
How does technology move the supply curve?
Reduces the amount of labour and therefore necessary costs to make a good.
53
By removing a seller from the market, the supply curve would...
shift to the left.
54
The supply curve shifts only when
there is a change in a relevant variable that is not named on either axis.
55
A kitchen fire destroys a popular pizza joint. What happens to the supply curve?
Shifts to the left
56
An increase in the price of root beer, a complement to pizza, affects the supply curve how?
Moves to the left along the curve
57
If the price of a substitute increases, which curve moves? where?
Demand curve shifts to the right.
58
What is the equilibrium?
A situation in which the price has reached the level where quantity supplied equals quantity demanded
59
What is the equilibrium price?
The price that balances quantity supplied and quantity demanded.
60
The quantity supplied and the quantity demanded at the equilibrium price
Equilibrium quantity
61
At the equilibrium price, the quantity of goods that buyers are willing and able to buy----
exactly balances the quantity tat sellers are willing to sell.
62
Why is the equilibrium price sometimes called the market-clearing price?
At this price, everyone in the market has been satisfied. Buyers have bought all they want to buy, and sellers have sold all they want to sell.
63
The actions of buyers and sellers move markets towards----
the equilibrium of supply and demand.
64
What is a surplus?
A situation in which quantity supplied is greater than quantity demanded.
65
How does the market push a surplus back to equilibrium?
At a going price above the equilibrium, the quantity supplied of a good exceeds the quantity demanded. Consumers are unwilling to purchase and sellers unable to sell. Sellers reduce the prices, which increase the quantity demanded and decrease the quantity supplied.
66
A seller reducing a surplus by reducing prices represents what kind of change in a demand and supply curve
movement along the curve
67
A situation in which quantity demanded is greater than quantity supplied is called
a shortage
68
How does the market correct a shortage?
Buyers cannot purchase their quantity demanded because the going price is too low, and results in too small of quantity supplied. Sellers respond to shortages by raising the price, which causes the quantity demanded to fall and the quantity supplied to rise, pushing the market to equilibrium.
69
What is the law of supply and demand?
The claim that the price of any good adjusts to bring the quantity supplied and quantity demanded for that good into balance.
70
What are the three steps to analyzing changes in equilibrium?
1) Decide whether the event shifts the supply or demand curve (or both) 2) Decide in which direction the curve shifts 3) Use the supply-and-demand diagram (or math) to see how the shift changes the equilibrium price and quantity.
71
What is step 1 of determining how hot weather affects the market for ice cream?
1) Determine how it affects supply and demand initially : Hot weather increases demand by changing taste, which increases the amount of ice cream that people want to buy at any given price. The supply curve is unchanged because the weather does not directly affect the firms that sell ice cream.
72
Because hot weather makes people want to eat ice cram, what happens to the demand curve?
It shifts to the right; the quantity of ice cream demanded is higher at every price.
73
What happens to the equilibrium when the demand curve for ice cream increases?
At the old price, there is now excess demand for ice cream, and the shortage induces firms to raise the price. It increases the price of ice cream and the quantity of ice cream sold.
74
"Supply" refers to what in the supply curve?
The position
75
How can there be an increase in quantity supplied but no change in supply?
A change in the quantity supplied does not necessarily alter firms' desire to sell at any price; It could only be a movement along the curve to meet a shift in demand.
76
What are the possible outcomes of a shift in both supply and demand
The size of the changes might make the price or the quantity sold move in various directions, depending on the magnitudes of the shifts.
77
What Is the role of prices in the market economy?
Prices are the signals that guide economic decisions and allocate scarce resources. For every good in the economy, the price ensures that supply and demand are in balance. The equilibrium price then determines how much of the good buyers choose to purchase and how much sellers choose to produce
78
Why are telecoms more consistent with monopolies
Very few companies often regionally siloed, which greatly increase the market price
79
What is the equilibrium movement for increase in both supply and demand.
Price depends on elasticity; quantity increases
80
What is the equilibrium movement for increase in supply and decrease demand.
Price decreases; quantity depends
81
What is the equilibrium movement for decrease in supply and decrease demand.
Price depends on elasticity; quantity decreases
82
What is the equilibrium movement for decrease in supply and increase demand.
Price increase; Quantity depends.
83
If the price decreases in a supply increase + demand decrease, which curve shifted more?
the demand
84

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