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Economics > Unit 2 > Flashcards

Unit 2 Flashcards

0
Q

Law of demand

A

Inverse relationship between p and q demanded

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1
Q

Demand

A

Different quantities that people are willing and able to buy at different prices in a given period of time

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2
Q

Marginal utility

A

Satisfaction you derive from an additional unit of a product

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3
Q

Diminishing marginal utility

A

First unit of consumption yields more utility than the second and subsequent units

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4
Q

Total revenue

A

=price*quantity demanded

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5
Q

Supply

A

Different quantities that firms are willing and able to produce at different prices

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6
Q

Law of supply

A

Direct relationship between p and q

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7
Q

Short run

A

Period during which at least one of a firm’s resources is fixed

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8
Q

Long run

A

Period during which all of a firm’s resources can be varied

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9
Q

Law of diminishing returns

A

As a more of a variable resource is added to a given amount of other resources, marginal product eventually declines and could become negative

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10
Q

Economies of scale

A

Forces that reduce a firm’s average cost as the firm’s size, or scale, increases in the long run

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11
Q

Equilibrium

A

When the quantity consumers are willing and able to buy equals the quantity producers are willing and able to sell

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12
Q

Surplus

A

At a given price, the amount by which quantity supplied exceeds quantity demanded

Usually forces the price down

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13
Q

Shortage

A

At a given price, the amount by which quantity demanded exceeds quantity supplied

Usually forces price up

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14
Q

Transaction cost

A

The costs of time and information needed to carry out market exchange

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15
Q

Productive efficiency

A

Occurs when a firm produces at the lowest possible cost per unit

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16
Q

Allocative efficiency

A

Occurs when a firm produces the output most valued by consumers

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17
Q

Disequilibrium

A

A mismatch between quantity demanded and quantity supplied as the market seeks equilibrium
Usually temporary, except when government intervenes to set the price

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18
Q

Price floor

A

imposed minimum price for a good or service

•supposed to help producers(surplus)

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19
Q

Price ceiling

A

Imposed maximum price for a good or service

•supposed to help consumers(shortages)

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20
Q

Bounded rationality

A

There are limits to the amount of information people can comprehend and act on

21
Q

Behavioral economics

A

Approach that borrows insights from psychology to help explain economic choices

22
Q

Consumer surplus

A

Difference between the most that consumers are willing and able to pay for a given quantity of a good and what they actually pay

23
Q

What does a demand curve look like?

A

Diagonal slant down from left to right
P up q down
P down q up

24
Q

What is the difference between demand and quantity demanded?

A

Demand is what a consumer is able and willing to buy while quantity demanded varies inversely with price bc of law of demand

25
Q

What does elasticity of demand measure?

A

Measures how responsive quantity demanded is to price change

26
Q

How do you calculate elasticity of demand?

A

=% change in quantity demanded/ % change in price

27
Q

What are three values of elasticity and what do they mean?

A

Elastic=greater than 1.0
Unit elastic=1.0
Inelastic=less than 1.0

28
Q

What are the three determinants of demand elasticity?

A
  • availability of substitutes
  • share of consumer’s budget spent on the good
  • time
29
Q

What are the five determinants of demand?

A
  • consumer income
  • tastes and preferences
  • expectations
  • price of related goods
  • population size and composition
30
Q

What is an inferior good?

A

Decrease as money income increases

31
Q

What is a complementary good?

A

Goods used in combination

Ex. Milk and cookies

32
Q

What is a substitute good?

A

Products that can be used in place of each other

33
Q

What causes movement along a demand curve?

A

Change in quantity demanded

34
Q

What causes a demand curve to shift?

A

Change of demand

35
Q

What does a supply curve look like?

A

Increases left to right
P up q up
P down q down

36
Q

What is the difference between supply and quantity supplied?

A

Supply is the entire relation between p and q supplied where quantity supplied refers to amount offered for sale at a specific price

37
Q

What does elasticity of supply measure?

A

Measures how responsive producers are to changes in price

38
Q

How do you calculate elasticity of supply?

A

=% change in q supplied/ % change in price

39
Q

What are the two determinants of supply elasticity?

A
  • cost of production

* time-length of adjustment period

40
Q

What are the five determinants of supply?

A
  • raw materials, labor, ect.
  • technological advances
  • price of related goods
  • firms’ expectation about future prices
  • number of suppliers
  • taxes and subsidies
41
Q

What causes movement along a supply curve?

A

Change in q supplied

Affected by price

42
Q

What causes a supply curve to shift?

A

Change of supply- change in any non-price determinant of supply

43
Q

What information do prices help convey?

A

Means of coordination
•guide resources to most productive uses
•provide info on relative scarcity

44
Q

How do prices act as signals in the marketplace?

A

High prices- encourage production
Discourage consumption

Low prices- discourage production
Encourage consumption

45
Q

How does surplus affect price?

A

Forces prices down

46
Q

How does shortages affect price?

A

Forces prices up

47
Q

What are three features of market exchange?

A
  • voluntary
  • both sides expect to benefit or don’t act
  • markets reduce transaction costs
48
Q

What is another name for the market clearing price?

A

Market equilibrium

49
Q

Who uses price ceilings and price floors to force the market into disequilibrium and why?

A

Public or government officials set them to try and and get out of disequilibrium

Economics (8 decks)

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