Micro Chap 3

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Author:
bwood190
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260095
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Micro Chap 3
Updated:
2014-02-04 08:55:35
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Micro
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Microeconomics chap 3
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  1. ´╗┐Market
    • Place where people exchange money for goods or services.
    • Buyers and sellers exchange info and do business
  2. Competitive market
    Loads of buyers and sellers so no single entity can influence price
  3. Money price
    Amount of money needed to buy something
  4. Relative price
    • Ratio of price against cost of next best alternative
    • This is an opportunity cost
  5. Demand
    • Want something, need it, plan to buy it
    • Wants are unlimited desires or wishes
    • Scarcity ensures many of our wants will go unfulfilled
  6. Quantity demanded
    • Amount consumers plan to buy in a given periods at a particular price
    • Measured in amount per unit of time
  7. Law of Demand
    • All factors remaining the same, increased price leads to let quantity demanded
    • 1. Substitution effect - higher price=higher opportunity cost, relative cost
    • Higher opportunity cost means people will try to economize and switch to alternatives
    • 2. Income effect - price roses relative to income
    • If price is higher with same income, people can't afford the same things they usually buy
    • Therefore quantity demanded decreases
  8. Substitution effect
    higher price=higher opportunity cost, relative cost
  9. Income effect
    • price roses relative to income
    • If price is higher with same income, people can't afford the same things they usually buy
    • Therefore quantity demanded decreases
  10. Demand
    Relationship between price of good and quantity demanded of that good
  11. Demand curve
    • Show's relationship between quantity demanded and price
    • Price vertical, quantity horizontal
  12. Demand schedule
    Table listing quantities bought at what price
  13. Change in demand
    • Factor that influences change in buying plans other than price of good
    • 6 in total. Price of related good, expected future price, income, expected future income, population, preferences
  14. 1. Price of related goods
    • Substitute, good that can be used in place of another good. Bus ride vs train ride
    • Compliment, good used in conjunction with other good. Fries and hamburgers
  15. Substitute
    • Good that can be used in place of another
    • Train vs bus ride
  16. Compliment
    • Good used in conjunction with other good
    • Fries and hamburger
  17. 2. Expected future price
    • People buy more if price is expected to rise
    • Oranges if frost occurs
    • Computers always drop therefore current demand generally low
  18. 3. Income
    • More income = more goods purchased
    • Normal good - if income high, demand high
    • Inferior good - if income high, demand low. Eg. able to pay for plane ticket vs bus ticket
  19. Normal good
    if income high, demand high
  20. Inferior good
    • if income high, demand low.
    • Eg. able to pay for plane ticket vs bus ticket
  21. 4. Expected Future income and credit
    if higher or more credit easily available, demand is high
  22. 5. Population
    Size and age structure
  23. Preferences
    • Determine value people place on a good/service
    • eg. depend on weather, info, fashion
  24. Change in quantity demanded
    • movement ALONG demand curve
    • decrease in qty demanded = up. higher price
    • increase in qty demanded = down. lower price
  25. Shift of demand curve
    • more demand = shift to the right
    • less demand = shift to the left
  26. Qty supplied
    • amount producers plan to make in a given period at a particular price
    • not equal to qty sold
  27. Law of Supply
    • other things remaining the same, higher price of good means higher qty supplied
    • lower price of good, less qty supplied
    • marginal cost of producing good up as qty goes up
  28. Supply
    relationship b/w price of a good and qty supplied of it
  29. Supply curve
    shows qty supplied vs price when nothing changes
  30. supply schedule
    table listing data
  31. minimum supply price
    • shows lowest price which producer will sell
    • lowest price = marginal cost down
    • lower qty = lower marginal cost and vice versa
  32. Change in Supply
    • any factor that influences selling plans other than the price of good
    • 6 main factors. Prices of factors of production, prices of related goods, expected future prices, # of suppliers, technology, state of nature
  33. 1. Prices of Factors of Production
    • factors used to produce goods - wages, supplies
    • if factor increases, lowest price producer will accept increases
  34. 2. Prices of Related Goods Increases
    • firms switch what they produce
    • supplements in production - goods can be produced w/ same resources
    • complements in production - goods must be produced together
  35. supplements in production
    goods can be produced w/ same resources
  36. complements in production
    goods must be produced together
  37. 3. Expected Future Prices
    if good can be sold at higher prices in future, supply decreases now
  38. 4. # of Suppliers
    more firms producing = more qty, firms are willing to sell products at lower prices
  39. 5. Technology
    • how factors of production are used to make goods
    • change occurs w/ innovation┬á
    • eg. new method used in factory
  40. State of Nature
    all natural forces that affect production
  41. Change in Qty Supplied
    • movement along supply curve
    • this is a change in price
  42. Shift of Supply Curve
    change in supply
  43. Equilibrium
    • opposing forces balance each other out
    • happens in mkt when buying and selling plans match
  44. equilibrium price
    price at which qty demanded = qty supplied
  45. equilibrium qty
    qty bought and sold at equilibrium price
  46. Price as a regulator (High vs low price)
    • High price = too much qty supplied for demand
    • Low price = more demand for supply
  47. Price adjustments
    • shortage increases prices
    • surplus forces prices down
  48. Predicting Changes
    • Change in demand = increase qty, increase price. NOT change in supply
    • Change in supply = increase qty, lower price
    • *6 things can change supply and demand*

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