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Flashcards in M icro Part I Deck (40)
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1

market

A market is a group of buyers and sellers of a particular good or service.

2

The paradigm of ____ is employed

The paradigm of the representative agent is employed

3

competitive market

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

4

Perfect Competition

– Products are the same
– Numerous buyers and sellers so that each has no influence over price
– Buyers and Sellers are price takers

5

Monopoly

– One seller, and seller controls price

6

Oligopoly

– Few sellers
– Not always aggressive competition

7

Monopolistic Competition

– Many sellers
– Slightly differentiated products
– Each seller may set price for its own product

8

Quantity demanded

is the amount of a good that buyers are willing and
able to purchase.

9

The law of demand

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

10

The individual demand curve

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

11

Market demand

refers to the sum of all individual demands for a
particular good or service. individual demand curves are summed horizontally to
obtain the market demand curve.

12

Shifts in the Demand Curve

• Consumer income
• Prices of related goods
• Tastes
• Expectations
• Number of buyers

13

The representative firm choices are the result of

profit maximization or
equivalently costs minimization.

14

Revenue

value of production sold

15

Costs

value of the inputs employed

16

Profits

Revenue less Costs

17

Factors of production

or "inputs" are what is used in the production process to produce output—that is, finished goods and services

18

Quantity supplied

is the amount of a good that sellers are willing and able
to sell.

19

The law of supply states that,

other things equal, the quantity supplied of a
good rises when the price of the good rises

20

The supply curve is

the graph of the relationship between the price of a
good and the quantity supplied.

21

Market supply refers to

the sum of all individual supplies for all sellers of
a particular good or service. Graphically, individual supply curves are summed horizontally to obtain
the market supply curve.

22

Shifts in the Supply Curve

Input prices
Technology
Expectations
Number of sellers

23

Equilibrium refers to

a situation in which the price has reached the level
where quantity supplied equals quantity demanded.

24

Equilibrium Price

The price that balances quantity supplied and quantity demanded.
On a graph, it is the price at which the supply and demand curves intersect.

25

Equilibrium Quantity

The quantity supplied and the quantity demanded at the equilibrium price.
On a graph it is the quantity at which the supply and demand curves intersect.

26

Law of supply and demand

The claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance. When the demand is greater (lower) than the supply, the price raises (falls).

27

comparative static analysis examines

examines how the solution values for the
endogenous variables of a system change when the exogenous variables
change.

28

From the signaling role of prices, some optimal properties of the “market”
are obtained.

The signalling role of prices implies
i) Sovereignty of the consumer
Zero profits (lowest price)
Production chosen by consumers
ii) Efficient allocation of resources
Intensive use of abundant resources and saving (non-intensive use) of
scarce resources.
iii) Maximization of production

29

Welfare economics

is the study of how the allocation of resources affects
economic well-being.

30

Consumer surplus measures ___.
Producer surplus measures ____.

Consumer surplus measures economic welfare from the buyer’s side.
Producer surplus measures economic welfare from the seller’s side.

31

The equilibrium in a market maximizes ____.
Equilibrium in the market results in ____.

The equilibrium in a market maximizes the total welfare of buyers and
sellers.
Equilibrium in the market results in maximum benefits, and therefore
maximum total welfare for both the consumers and the producers of the
product.

32

Willingness to pay is

Willingness to pay is the maximum amount that a buyer will pay for a good.
It measures how much the buyer values the good or service.

33

Consumer surplus

is the buyer’s willingness to pay for a good minus the
amount the buyer actually pays for it.

34

The market demand curve depicts ____ .
The area ____ the demand curve and ____ the price measures ____

The market demand curve depicts the various quantities that buyers would be
willing and able to purchase at different prices.
The area below the demand curve and above the price measures the consumer
surplus in the market

35

Consumer surplus

Consumer surplus, the amount that buyers are willing to pay for a good minus
the amount they actually pay for it, measures the benefit that buyers receive
from a good as the buyers themselves perceive it.

36

Producer surplus is ____
It measures _____

The area ____ the price and ____ the supply curve measures ____

Producer surplus is the amount a seller is paid for a good minus the seller’s
cost.
It measures the benefit to sellers participating in a market.
Just as consumer surplus is related to the demand curve, producer surplus is
closely related to the supply curve.
The area below the price and above the supply curve measures the producer
surplus in a market.

37

Market Efficiency

Efficiency is the property of a resource allocation of maximizing the total surplus received by all members of society. Free markets produce the quantity of goods that maximizes the sum of consumer and producer surplus

38

market failures ____ .
they justify____

when the market is not efficient.
Market failures justify Government intervention

39

These are cases of market failures

Market power
Externalities
Public goods
Asymmetric information
Distribution
Natural monopoly

40

Market Power

– If a market system is not perfectly competitive, market
power may result.
• Market power is the ability to influence prices.
• Market power can cause markets to be inefficient
because it keeps price and quantity from the equilibrium
of supply and demand.