MicroEconomics Chapters 3&4

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  1. What is the law of demand?
    there is an inverse relationship between the price of a good and the quantity buyers are willing to purchase in a defined time period, ceteris paribus
  2. A change in quantity demand means a movement
    up and down the curve DO TO PRICE
  3. What is demand?
    demand represents the choice making behavior of buyers
  4. What is a demand curve?
    a curve that shows the quantities of a good or service that people( WE THE CONSUMER) are willing and able to buy at different prices
  5. Why do demand curves have a negative slope?
    as the price per unit of a good or service falls buyers can afford to buy more units per period of time
  6. When price changes what happens?
    the curve does NOT SHIFT there is a change in quantity demande and a movement along the curve.
  7. what happens when prices decrease?
    there is a downward movement along the demand curve--> increase in quantity demand
  8. what happens when price increases?
    there is un upward movement along the demand curve--> decreases in quantity demand
  9. Does price have something to do with the shift in the demand curve T/F
  10. What has an effect that can shift the demand curve right or left?
    • The 5 Nonprice determinants
    • 1. #of buyers
    • 2. Income
    •   Inferior goods/normal goods
    • 3. taste and preferences
    • 4. Expectations of buyers
    • 5.Price of related goods
  11. #of Buyers Example:Immigration from Mexico increases the  demand for Mexican food products in grocery stores.what does it do to the curve
    Shifts to the Right
  12. # of buyers Example: A decline in the birthrate reduces the demand for baby clothes.
    Shift to the left
  13. Taste and Preferences: For no apparent reason, consumers want Beanie Babies and demand increases.
    Shift to the right
  14. Taste and Preferences: After a while, the fad dies and demand declines.
    Shifts to the left
  15. Income A. Normal Goods: Consumers’incomes increase, and the demand for steaks increases
    Shifts to the right
  16. Income A Normal goods: A decline in income decreases the demand for air travel.
    Shift the left
  17. Income Inferior Goods: Consumers’ incomes increase, and the demand for hamburger decreases.
    shift to the left
  18. Income: Inferior Goods: A decline in income increases the demand for bus service
    shifts to the right
  19. Expectations of buyers: Consumers’expect that gasoline will be in short supply next month and prices will risesharply. Consequently, consumers fill the tanks in their cars this month, andthere is an increase in demand for gasoline
    Shifts to the right
  20. Expectations and buyers:Months later consumers expect the price of gasoline to fall soon, and the demand for gasoline decreases.
    shifts to the left
  21. Prices of related goods A. Substitute  :A reduction in the price of tea decreases the demand for coffee.
    shifts to the left
  22. Prices of related goods: An increase in the price of airfares causes  higher demand for bus transportation.
    shifts to the right
  23. prices of related goods Complementary Goods:
    A decline in the price of cellular service increases the demand for cell phones.
    shifts to the right
  24. Prices of Related Goods Complementary Goods: A higher price for peanut butter decreases the demand for jelly.
    shifts to the left
  25. What is a normal good
    •Any good for which there is a direct relationship between changes in income and its demand curve
  26. What does a direct relationship between price andquantity mean?
    the two variables move in the same direction
  27. What is aninferior good?
    •Any good for which there is an inverse relationship between changes in income and its demand curve
  28. What does an inverse relationship between price &quantity mean?
    •It means that the two variables move in opposite directions
  29. What are substitute goods?
    •Goods that “compete” with one another for consumer purchases
  30. What are complementary goods?
    •Goods that are “jointly consumed” with another good
  31. Whatis supply?
    Supply represents the choice making behavior of sellers
  32. Whatis thelaw of supply?
    •There is a direct relationship between the price of a good and the quantity sellers are willing to offer for sale in a defined time period, ceteris paribus
  33. Why do supply curves have a positive slope?
    •Only at a higher price will it be profitable for sellers to incur the higher opportunity cost associated with supplying a larger quantity
  34. When price changes, what happens?
    The curve does not shift and there is a “change in the quantity supplied"
  35. increase in price
    leads to an upward movement along the supply curve which leads to an increase in quantity demand
  36. decrease in price
    leads to a downward movement along the supply curve and decrease in quantity supplied
  37. A change in price causes a change in the quantity supplied T/F
  38. Change in quantity --> movement up or down --> because of ???
  39. change in supply--> shift of the entire curve left or right -->> because of???
    6 nonprice determenants
  40. When a variable other than pricechanges, what happens?
    • •The whole curve shifts and there is a “change
    • in supply”
  41. •Changes in nonprice determinants can produce only a shift in a supply curve and not a movement along the demand curve T/F
  42. A shift in a supply curve is caused by a change in:
    •Number of sellers in the market•Technology•Resource prices•Taxes and subsidies•Expectations of producers•Prices of other goods and services the firm could produce
  43. What is a market?
    •Any arrangement in which buyers and sellers interact to determine the price and quantity of goods and services exchanged
  44. Where is the equilibrium price?
    •At the price where the quantity demanded and the quantity supplied are equal
  45. What is the price system?
    •A mechanism that uses the forces of supply and demand to create an equilibrium through rising and falling prices
  46. What causes a change in market equilibrium?
    •A change in demand•A change in supply
  47. An increase in demand does what to the equilibrium and quantity supply
    increase equilbrium price and increase quantity supply
  48. A decrease in demand does what to the equilbrium and quantity supplied?
    decrease equilibrium price and quantity supplied
  49. An increase in supply does what to the equilbrium price and quantity demand?
    decrease the equilbrium and increase the quantity demanded
  50. A decrease in supply has what effect on the equilbrium price and quantity demand?
    increases the equilbrium price and decreases the quantity demand
  51. What are the two types of pricecontrols?
    1.Price ceilings2.Price floors
  52. What is a price ceiling?
    •A legally established maximum price a seller can charge
  53. What is the purpose of priceceilings (rent control) on rent? examples.
    •So needy people will pay lower rent than the equilibrium rent
  54. What is the result of priceceilings (rent control) on rent?
    •A shortage of rental units
  55. Th effects of rent ceiling on quanity demand and what happens?
    the quanity demand exceeds the quantity supply which causes a shortage
  56. Why may rent controls becounterproductive?
    •Shortages•Illegal markets•Less maintenance•Discrimination
  57. What is a price floor?
    •A legally established minimum price a seller can be paid
  58. What are examples of pricefloors?
    •Minimum wage law•Agricultural price supports
  59. What is the result of a pricefloor (minimum wage) on wages paid to labor?
    a surplus of labor
  60. High Minimum wage leads to unemployment T/F
  61. What is market failure?
    •A situation in which the price system results in too few or too many resources used in the production of a good or service. This inefficiency may justify government intervention.
  62. What are some market failuresituations?
    •Lack of Competition•Externalities•Public Goods•Income Inequality
  63. What happens when competition islacking?
    •Market failure results
  64. Who is Adam Smith?
    •The father of modern economics who wrote The Wealth of Nations, published in 1776
  65. What is an externality?
    •A cost or benefit imposed on people other than the consumers and producers of a good or service (third parties).
  66. What is anegative externality?
    •An externality that is detrimental to third parties
  67. What is an example of a negativeexternality?
  68. What is apositive externality?
    •An externality that is beneficial to third parties
  69. What is an example of a positiveexternality?
  70. What is the conclusion? about positive externalities
    •When externalities are present, market failure gives incorrect price and quantity signals, and resources are misallocated
  71. What is the effect of externalcosts and benefits on resources?
    •External costs cause the market to overallocate resources, and external benefits cause the market to underallocate resources
  72. What is a public good?
    •A good that, once produced, has two properties:                                 1.users collectively consume benefits2.no one can be excluded who who does not pay (free rider)
  73. What are examples of publicgoods?
    •National defense•Public education•Highways
  74. What is the conclusion? about public goods?
    •If public goods are available only in the marketplace, people wait for someone else to pay, and the result is an underproduction or zero production of public goods
  75. What is another example of marketfailure?
    •Income inequality         •Government transfer programs such as social security, unemployment compensation, food stamps, and minimum wage are examples of programs that  redistribute income.
  76. Which of the following is the most likely result of an increase in the minimum wage? A) An increase in the employment of unskilled workers. B) A decrease in the number of workers seeking minimum wage jobs. C) An increase in the demand for unskilled workers. D) A decrease in the employment of unskilled workers.
  77. Price floors are instituted because the government wants to: A) help consumers. B) help producers. C) raise tax revenue. D) prevent imports. E) increase demand.
  78. A price floor that sets the price of a good above market equilibrium will cause: A) a decrease in quantity demanded of the good. B) an increase in quantity supplied of the good. C) a surplus of the good. D) all of these.
    D all of these
  79. A price floor would be established in cases where the government believed the market equilibrium price would: A) result in a surplus. B) be too high. C) result in a shortage. D) be too low. E) yield excess profits.
    D be too low
  80. If people buy less chewing gum at every price when their incomes fall, then: A) chewing gum is a normal good. B) the demand for chewing gum is positively sloped. C) demand for chewing gum has increased. D) the price of chewing gum has increased. E) there has been a decrease in population that changed demand.
    A its a normal good
  81. An increased equilibrium price and a decreased equilibrium quantity results from a
    decrease in supply
  82. if goods A and B are complements and the price of goods B rises how will this affect the market equilbrium for good A
    both price and quantity will fall
Card Set:
MicroEconomics Chapters 3&4
2013-09-12 00:49:41

Irvin B. Tucker 8ed.
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