Topic 2 Flashcards
(34 cards)
What factors can cause a shift in supply?
Technology, weather, improvement in technology, costs, number of suppliers, productivity
A shift to the right indicates an increase in supply, while a shift to the left indicates a decrease in supply.
What happens to supply when there is an improvement in technology?
Shift to right
This indicates an increase in supply due to more efficient production methods.
What does a contraction in demand and an extension in supply indicate?
Interaction of supply and demand to determine price in a market
This affects the equilibrium price and quantity.
What occurs when the price is above the equilibrium price?
Excess supply
This results in quantity supplied exceeding quantity demanded.
What is the result of excess supply?
Surplus supply
For example, if quantity demanded is 4 and quantity supplied is 7, the surplus is 3.
What happens to the price when there is excess demand?
Consumers will bid up the price
This increases quantity supplied to reach equilibrium.
What is the price mechanism?
Interaction of supply and demand to determine prices
Often described using the concept of the ‘invisible hand’.
What are the three functions of prices in the market?
Signalling, incentivizing, rationing
These functions help to balance supply and demand.
How does falling prices affect producers?
Reduces incentive to supply
This can lead to a contraction in supply.
What is the effect of rising prices on consumer demand?
Decreases demand
Higher prices limit the number of consumers willing and able to purchase.
Fill in the blank: The gap between quantity supplied and quantity demanded when there is excess supply is called a _______.
Surplus
This occurs when supply exceeds demand at a given price.
What happens at price level pl?
At price level pl, there is excess supply. Producers will decrease their prices to sell off the excess supply.
What does a decreasing price signal to producers?
A decreasing price signals to producers that consumers want fewer goods.
How does a decreasing price affect quantity supplied?
The decreasing price reduces the incentive to supply, leading producers to decrease their quantity supplied.
What is the result of reduced quantity supplied?
This reduction in quantity supplied brings the market back to equilibrium.
What happens when there is an increase in demand?
An increase in demand results in a shift to the right.
What does an increase in supply indicate?
An increase in supply indicates an extension in supply, leading to a lower price.
What is the relationship between higher prices and demand?
Higher prices lead to higher demand and higher quantity supplied.
What occurs when there is excess supply?
When there is excess supply, producers will decrease the price to sell off their surplus.
What happens when supply decreases?
When supply decreases, it results in a lower quantity available in the market.
What is the marginal benefit curve also known as?
The marginal benefit curve is also known as the demand curve.
What happens to demand when price decreases?
When price decreases, more people can afford the good and people may switch over from substitutes.
What is the relationship between quantity and marginal benefit?
As quantity increases, marginal benefit decreases.
What is the law of diminishing marginal utility?
As you consume more of a good, the marginal utility you get from an extra unit will decrease.
