FIN Micro Flashcards
What is the Law of Demand?
As price increases, quantity demanded decreases (inverse relationship).
What is the Law of Supply?
As price increases, quantity supplied increases (direct relationship).
What does TIMER stand for in demand shifters?
Tastes, Income, Market size, Expectations, Related goods.
How does a change in Tastes affect demand?
If something becomes trendy or preferred, demand increases.
How does Income affect demand for normal vs. inferior goods?
Normal goods: Income ↑ = Demand ↑; Inferior goods: Income ↑ = Demand ↓.
What is the effect of Market Size on demand?
More buyers = higher demand; fewer buyers = lower demand.
How do Expectations of future price affect current demand?
If prices are expected to rise, current demand increases.
How do Related Goods shift demand?
Complements: Price ↑ of one → Demand ↓ of the other.
Substitutes: Price ↑ of one → Demand ↑ of the other.
What does TENPG stand for in supply shifters?
Technology, Expectations, Number of sellers, Price of inputs, Government.
How does Technology affect supply?
New technology = more efficient production = supply increases.
How do Expectations of future price affect current supply?
If price is expected to rise, current supply may decrease.
How does the Number of sellers affect supply?
More sellers = more supply; fewer sellers = less supply.
How do Input prices affect supply?
Higher input costs = lower supply; lower input costs = higher supply.
How does Government affect supply?
Taxes/regulations = lower supply; subsidies = higher supply.
If supply and demand both increase, what happens to quantity and price?
Quantity ↑, price = indeterminate.
If supply and demand both decrease?
Quantity ↓, price = indeterminate.
If demand increases and supply decreases?
Price ↑, quantity = indeterminate.
If demand decreases and supply increases?
Price ↓, quantity = indeterminate.
What is a normal good?
A good people buy more of as their income increases.
(Ex: steak)
What is an inferior good?
A good people buy less of as their income increases.
(Ex: ramen noodles)
What are complementary goods?
Goods used together. Price ↑ of one → Demand ↓ of the other.
Ex: Peanut butter & jelly.
What are substitute goods?
Goods used instead of each other. Price ↑ of one → Demand ↑ of the other.
Ex: Coke & Pepsi.
What is a price ceiling?
A max legal price, set below equilibrium → causes shortage.
What is a price floor?
A min legal price, set above equilibrium → causes surplus.
