Microeconomics + Demand (Unit 2, additional from Unit 1) Flashcards
Define joint supply
1 resource -> multiple non-competing products
(e.g. beef and leather)
- Supply’s version of complimentary goods
Define competitive supply
1 resource -> multiple COMPETING products
(e.g. lands -> offices, houses)
Define producer price expectations and explain its relationship with supply
Firms withhold some of their products from selling now IF they expect it to sell better in the future
- SHIFT IN SUPPLY TO THE LEFT: PRESENT
- SHIFT IN SUPPLY TO THE RIGHT: FUTURE
Define government intervention of tax in relation to supply
Taxes ^ = ^ production cost (IT’S A NON-PRICE DETERMINANT)
- Therefore:
- New taxes = shift in supply curve to the left
- Removal of taxes = shift to the right
Define subsidies in terms of supply
Subsidies are payment from the government to incentivize the production of a certain good
Explain the relationship between the number of firms and supply
^ Firms = ^ Supply
v Firms = v Supply
Define shocks
Unpredictable events (e.g. war, weather, pandemics, etc.)
Explain the relationship between subsidies and supply
^ subsidies (= v production costs) = ^ supply
v subsidies (=^ production costs) = v supply
Define the term allocative efficiency
efficient market whereby all goods and services meet the needs and wants of society
- when the needs of both consumers and firms are met
- When a market is in equilibrium
List the assumption underlying the Law of Supply
Based on the relationship between production and production costs
- (verify with sir): The Law of Supply assumes that the production costs stay the same without the influence of outside forces such as taxes and subsidies
- additionally: the technique stays the same thus the cost for that technique stays the same so the product cost would stay the same.
Outline the two time periods in Economics
There are two: the long run (where all inputs can be changed) and the short run (time period with one fixed input)
Define the terms in Short-Run Assumptions (products)
1.) Total Product (TP) - Total quantity of output produced by a firm.
2.) Average Product (AP) - Measures output per worker-employed or output-per-unit of capital
3.) Marginal Product (MP) - Relationship between inputs and outputs in the short-run.
Define the terms under short-run assumptions (costs)
1.) Total Cost (TC) - sum of all costs incurred by a firm in producing a certain level of output
2.) Marginal Cost (MC) - Extra or additional cost of producing one more unit of output. Shows how much total costs increase if there’s an output by one unit.
LIST THE FORMULAS OF THE SHORT TERM ASSUMPTIONS — AP, MP and MC (FORMULAE)
AP = TP/V
- where V is no. of variable inputs
- Purpose: To know how much variable inputs/resources are spent per (non-additional) unit
- Total product
MP = 🔺TP/🔺V
- purpose: to know how much resources are spent per additional unit ??
- remember: marginal = additional in Econ
- TP = total product
MC = 🔺TC/🔺q where q = level of output (basically TP??)
- purpose: to know how much was spent in creating additional units of a product
- TC = total cost
Explain the reason why there’s a direct causal relationship between price and quantity supplied.
It is because of the producers’ econ objective: to earn more profit.
- Without factoring into demand, companies would be more willing to sell their products at higher prices for more profit ceteris paribus.
Define cost.
The amount a business has to pay for their production of goods
Give the variable that is present in supply curves but not in demand curves?
Production cost
Describe the relationship between cost and quantity supply.
^ production cost = v quantity supply
and vice versa.
Describe the relationship between price and quantity supply
^ Price = ^ Quantity supply
Define (quantity) supply
The willingness and ability of a business to sell its products.
Outline why a supply curve never starts from 0.
(According to the internet) It is because the price is never 0.
- Due to the FoPs/resources used
Define efficiency
Best use of scarce resources to avoid waste
How do consumers and producers try to meet economic objectives? (CONT. ?? Verify)
By interacting via the market
Define market equilibrium
It when both consumers and producers’ economic objectives are satisfied.
Relate the different diagrams with each other (PPC, Supply Curve, Demand Curve, Market Diagram) (REVIEW THE CARD-MAKING ??)
Supply Curve + Demand Curve = Market Diagram
PPC affected by all other three diagrams because it would influence which choice producers would take in relation to producing a certain product
Define quantity traded (ADD PHOTO)
The quantity at which the supply and demand meet (AKA the points on the market diagram)
- quantity supplied
- quantity demanded
How does the Market Diagram shift? (ADD PHOTO + CONT.)
NOT ALWAYS: DEPENDS ON THE SITUATION AND GRAPH
Increase in demand and supply (initial equilibrium = increase in price and quantity supplied (final equilibrium.)
Decrease in demand and supply (initial equilibrium = decrease in price and quantity supplied (final equilibrium.)
Explain how does contractional and expansional movement occur in market diagrams? (CONT> ADD PHOTO)
When there’s an excess demand, who is at the loss?
The consumers who were not able to get a good/service due to it only being at a certain quantity.
If you want to increase the quantity demand but decrease quantity supply?
Lower price
If you want to decrease the quantity demand but increase quantity supply?
Increase price
Define shortage
Excess demand
(Consumers not satisfied)
Define surplus
Excess supply. (Producers aren’t satisfied.)
Define equilibrium price
Point where there’s neither surplus nor shortage
Define Equilibrium Quantity
Quantity supplied and demanded at market equilibrium
Define competitive market equilibrium
No price change due to quant. demand = quant. supplied.
Where are surplus and shortage placed in the market diagram?
Outline/explain the non-price determinants of demand
-
Income
- Normal goods: ^ income ^ demand
- Inferior goods (inferior to normal goods): ^ Income v demand
-
Price of related goods
- Substitutes
-
Taste and preferences
- advertising, marketing, media influence (e.g. influencers, political climate)
-
Future price expectations
- e.g.: Black Friday
- Changes in weather
-
Number of consumers
(often work together)
ISTFCWN
Interns swindling fracking cons with nubility
When the demand moves along the demand curve in an upwards direction, explain what it is and its implications to the elasticity of demand
Contraction
- The demand is lessening.
- Bg info: See that the demand curve is in a slanted direction upwards to downwards like this”\”. It starts at a high point in the y-axis (the price) and then descends lower the price (y-axis) but goes to the right in quantity supply.
- Thus if the demand moves upwards the demand, it would mean the prices are increasing and the demand is decreasing (law of demand ceteris paribus)
When there’s a downward movement in the demand curve, explain what caused that and its implications to the elasticity of demand
Expansion
- Due to the decreasing price, the demand increases (law of demand, (( dk if to use this ceteris paribus)))
Distinguish change in quantity supply and demand from change in supply and demand
The change in which determinant caused this?
A change in non-price determinant caused the change in supply
- see how the price (y-axis didn’t change?)
-also please don’t forget the arrows
The change in which type of determinant caused this?
The change in price (determinant) caused the change in quantity supply
- see how the prices change?
Which type of demand determinant changed to cause this diagram?
The change in price caused the movement (change) along the demand curve/ change in quantity demand.
- see how the y-axis (price) of the two points are different?
Which type of demand determinant changed to cause this diagram?
The non-price determinants (such as consumer preferences, price expectations, etc.) caused the shift in demand curve in the diagram.
- see nhow the prices (y-axis) didn’t change?
Why do firms have a surplus?
Usually, its when there’s excess supply due to the price of a good/service being higher than the market equilibrium.
(see the blue)
Why do firms have a shortage?
Usually, its when there’s excess demand due to the price of a good/service being lower than the market equilibrium. (law of demand, ceteris paribus)
(see the red)
Define consumer surplus
gain or benefit to buyers who can purchase a product at a price lower than what they are willing and able to pay for the product
(basically them saving)
- additional benefit
Give the formula of the area of triangles (to use for consumer and producer surplus)
bh/2
Define the community/social surplus
The sum of consumer surplus and producer surplus. This represent the benefit available to society (consumers + producers) from an economic activity (e.g. transaction)
- market equilibrium. both sides get benefit towards their economic goal.
Explain socially optimal situation/Pareto-optimal allocation
This is when the distribution of resources are very allocatively efficient to get the maximum possible benefit.
- What does this mean?: Because, the maximum benefit is achieved, no one can be better off without making someone worse off
- Meaning: Just because both consumer and producer needs are met (market equilibrium), it doesn’t mean they are met equally. (e.g. in a socially optimal/pareto-optimal situation, both consumer and producer needs are met but not equally.)
- example: Point B in the market diagram presents the best benefit for both the consumers and producers but moving to Point C would be more beneficial for consumers but producers would be worse off (the consumer surplus triangle would be bigger than the worse off producer surplus).
Why is the PED always negative
-
Law: Because of the inverse relationship of price and demand (law of demand)
-> Relation: because one will always be less than the other??- Because as price increases, quantity demand decreases and vice versa (that is why they move in different directions)
- Therefore the PED is always negative??
Describe perfect elasticity
-
infinite change in demand (thus perfectly elastic), same price
-> because price inelasticity is when the demand doesn’t change (that much) in regards to price
-> Therefore when the price inelasticity is perfect, the demand changes no matter how the prices change- purely hypothetical
- Can only happen if there are many substitutes readily accessible to consumers that would create a change of demand infinitely
- in perfectly-competitive market (where all the goods being sold are the exact same thing but brands are different)
Describe perfect inelasticity
Talks in generality (no specific brands) — basically no matter how much the price changes, the demand stays the same.
- disregards brands’ differences in their products (e.g. the different planting of apples) therefore it assumes a perfectly-competitive market (different brands but same exact [take?] product)
- No changes in the firm’s revenue (why?)
- A little bit hypothetical, difficult for it to happen
- e.g. the basic necessities asides from shelter
Explain this figure
It is NOT related to the degrees of demand.
- Based on the income of people
- If the prices are higher, less people will buy whereas if the pricers are lower, then there wouldn’t be any change to the quantity demand of this product because the consumers will still be buying them.
