Microeconomics Booklet Two Flashcards
(22 cards)
what is demand?
the quantity of a good or service that consumers are willing to buy at a given price
what is effective demand?
the quantity of a good or service that customers are willing and able to buy at a given price
what is the law of demand?
as price increases quantity demanded will decrease
what is supply?
the quantity of a good or service that sellers are willing to sell at a given price
what is the law of supply?
as price increases so will quantity supplied as sellers are incentivized by profit.
what is diminishing marginal utility?
the first unit of a good consumed will usually provide the most utility which will decrease with each subsequent unit
what is a contraction of demand?
as price increases quantity demanded will decrease
what is an extension of demand?
a decrease in price will result in an increase in quantuity demanded
what is an extension of supply?
an increase in price will lead to an increase in quantity supplied
what is a contraction of supply?
a decrease in price will result in a decrease in quantity supplied
what is a market?
a place where buyers and sellers come together to trade.
what is market equilibrium?
the point at which the supply and demand curves cross, this determines the market equilibrium price and quantity.
this can also be called the market clearing price as there will be no excess demand nor excess supply
how are resources allocated in free markets?
in markets free from government intervention resources are described as being allocated by the interaction of market forces, consumers signal their wants by their spending habits and producers respond in order to maximize profit.
what are the other factors that affect demand?
income- consumers have more spending power as incomes increase
price of other goods-the prices of other goods are likely to affect demand
tastes and preferences-something has changed that affects the buyers valuation of the good or service.
expectations of the future- the expectation of scarcity or an increase in price
what are normal goods and inferior goods?
normal goods are ones for which demand increases as incomes increase whereas inferior goods are ones for which demand decreases as incomes increase.
what are substitutes and complements?
substitutes are goods that can be easily swapped for one another whereas complements are goods that are often used together.
substitutes are in competitive demand meaning as demand increases for one it decreases for the other whereas complements are in joint demand meaning as demand increases for one it increases for the other.
what is composite demand?
when a good is demanded for two or more distinct uses.
what is derived demand?
when demand for a good is derived from demand for another good
what are factors that affect supply?
costs opf production
subsidies given to the business
government legislation
taxes
price of other goods
technology
productivity
what is joint supply?
when an increase in supply for one good leads to an increase in supply for another
what is consumer surplus?
consumer surplus is the welfare gained by a consumer who pays less for a good than the maximum they would have been willing to pay
what isproducer surplus?
producer surplus is the welfare gained by a producer that receives more for a good than the minimum they would have been willing to accept
