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Flashcards in Week 2 Deck (33)
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1
Q

What do demand and supply curves do?

A

explain how prices are determined

2
Q

What slope is the demand curve

A

downward

3
Q

Why is the demand curve downward sloping

A

because consumers want less at a higher price and more at a lower price

4
Q

What is the law of demand

A

holding all else constant when the price of a good product falls the quantity demanded will rise and when the price falls the quantity demanded will fall

5
Q

What 2 things explain the law of demand

A

1: Substitution Effect
2: Income Effect

6
Q

What is the substitution effect

A

Demand changing due to change in price making good less or more appealing relative to substitute goods

7
Q

What is the income effect

A

Demand changing resulting from effect of change in goods price on consumers purchasing power

8
Q

What happens when market demand shifts?

A

the quantity demanded at every price changes

9
Q

How many variables shift market demand?

IPRGTDEFP

A

5

10
Q

How does income shift market demand

A

incomes consumers have affect their willingness to buy a specific good. more of normal goods less of inferior goods

11
Q

how do prices of related goods shift market demand

A

prices of substitutes and complementary goods shift demand

12
Q

how does taste shift demand

A

as tastes for goods change demand changes with it

13
Q

how do demographics shift demand

A

as demographics change demand for different goods change

14
Q

how do expected future prices shift demand

A

higher prices in future lead to higher present demand while lower prices in future lead to lower present demand

15
Q

does a change in price shift demand?

A

no it does not shift the demand curve but leads to a movement up or down the curve

16
Q

what slope is the supply curve

A

upward sloping

17
Q

why is the supply curve upward sloping

A

because firms want to supply more at a higher price and less at a lower price

18
Q

what is the law of supply

A

Increases in the price of a product causes an increase in the quantity supplied and decreases in the price cause a decrease in the quantity supplied

19
Q

how many variables shift supply

pitpsnofexp

A

5

20
Q

how do price of inputs shift supply

A

if input prices are lower supply will increase if higher supply will decreases

21
Q

how does technological change shift supply

A

technological change increases productivity which makes producing cheaper increasing supply

22
Q

how do prices of substitutes in production shift supply

A

if the price/demand of a substitute is higher firms will produce more of that product then the current product

23
Q

how do number of firms shift supply

A

more firms increases supply less firms decreases supply

24
Q

how do expected future prices shift supply

A

higher prices in future leads to lower present supply lower prices in future leads to higher present supply

25
Q

what is equilibrium

A

the point where quantity demanded and quantity supplied meet

26
Q

can markets not be in equilibrium

A

yes they can but they move back

27
Q

what is a market surplus

A

when the quantity supplied is more then the quantity demanded due to high price

28
Q

how is a surplus removed

A

by lowering the price thus increasing demand and returning to equilibrium

29
Q

what is a market shortage

A

when the quantity demanded is more the quantity supplied due to low price

30
Q

how is a shortage removed

A

by increasing the price thus reducing demand and returning to equilibrium

31
Q

how does a shift in supply affect equilibrium

A

a shift to the right results in a surplus at original price so price is dropped to increase demand, a shift left has the opposite effect

32
Q

how does a shift in demand affect equilibrium

A

if demand shifts right there will be a shortage leading to a higher price to reduce demand, a shift left has opposite effect

33
Q

how does a shift in both supply and demand affect equilibrium

A

whether the equilibrium price rises or falls over time with demand and supply shifts depends on whether demand shifts more then supply or vice versa