Week 2- Demand, Supply, and Market Equilibrium notes Flashcards Preview

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Flashcards in Week 2- Demand, Supply, and Market Equilibrium notes Deck (36):
1

Market

A big bubble where buyers and sellers communicate. Buyers and sellers provide competition.

2

Demand-

Curve that shows amount of goods that people are WILLING and ABLE to purchase.

3

Law of Demand-

price falls, quantity demanded rises. Inverse relationship.

4

Marginal-
Utility-

Marginal- change
Utility- happiness.

5

Law of Diminishing Marginal Utility-

Consuming the same unit makes you less happy and satisfy.

6

Income effect-

If Purchasing Power increases, Price decreases.

7

Substitution effect-

As price increases, consumer seeks lower cost alternatives.
As income increases, consumer seeks for high quality goods and more expensive stuff.

8

Determinants of demand-

1. Consumer taste.
2. Amount of buyers in market.
3. Consumer income (normal or inferior).
4. Price related goods (substitute and complementary goods).
5. Consumer expectations.

9

How to find Market demand-

By adding quantity demanded from all consumers at certain price to get market demand.

10

Change in demand?

Shift right= increase. Shift left= decrease in demand.

11

Normal goods-

Varies directly w/ incomes.

12

Inferior goods-

Varies inversely.

13

Substitute goods-

Replace other goods. Ex: Price of pepsi increase, you not going to buy pepsi anymore. Therefore, your demand for Coke increase.

14

Complement goods-

If price of a good goes up, price of related goods decrease.
Ex: Hotdog price increase, less people will buy hotdog buns.

15

Unrelated goods (independent)-

Goods not related to one another.

16

Consumer expectations-

If they expect price of goods increase in future, they will buy more today (more demand).

17

Change in Quantity demanded-

Movement along the line (up and down), not shift right or left.

18

Supply-

Goods that producers are WILLING and ABLE to purchase.

19

Law of Supply-

Direct relationship btwn Price and Quantity supplied. .

20

Market supply-

Find the sum of each individual suppliers at certain price, then add up together to find market supply.

21

Determinants of supply:

1. Resources prices- high production price, supply decreases.
2. Technology- increase in technology which lowers production cost= supply decreases.
3. Taxes and subsidies- tax increase= supply decrease.
4. Price of other goods- price of other goods increase, supply of original good decreases.
5. Producer expectations- Farmers will hold supply and release in future if price increase. Factory will increase labor supply to meet future increase in price.
6. Number of sellers- more sellers= more supplies.

22

Market equilibrium-

Competitive market w/ multiple sellers and buyers act independently, none of them can set price.

23

Equilibrium price-

Price where buyers and sellers match. Equilibrium aka Market Clearing Price.

24

Equilibrium quantity-

Quantity demanded = quantity supplied.

25

Rationing function of prices-

Ability for competition to force supply and demand into an equilibrium.

26

Productive efficiency-

Minimizes cost.

27

Allocative efficiency-

Mix of goods most valued by society. MB=MC

28

Price ceiling-

Set maximum legal price that seller may charge for services by gov't. Causing shortage and Black Market.

29

Rent Control-

Gov't set price ceiling, causing shortage on renting places.

30

Price Floor-

Minimum price fit by gov't. Causing surplus due to the fact that there's more supplies than demands.
Gov't can help by: restrict supply or purchase those surpluses.

31

Price floor and Price ceiling causes-

Failures to allocate efficiency.

32

How to calculate Consumer surplus-

Willing to pay - amount actually pay.

33

Producer surplus-

Amount that seller is paid for a good - cost of production.

34

Social surplus (Total Surplus)-

Sum of Consumer surplus and producer surplus.

35

Deadweight loss-

Loss in total surplus that occurs when economy produces at an insufficient quantity.

36

Alfred Marshall-

A famous economist.