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Chapter 3 Cards

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Termini in questo insieme (21)

  • What defines a competitive market?
    A competitive market has many buyers and sellers for the exact same good, so no single buyer or seller can affect the price.
  • What is the difference between money price and relative price?
    Money price is the price measured in currency, while relative price is the price of a good measured in terms of another good, representing opportunity cost.
  • How do you calculate the relative price of good A in terms of good B?
    Relative price of A in terms of B = Money price of A / Money price of B.
  • What is quantity demanded (QD)?
    Quantity demanded is the total amount consumers plan to buy during a given time period at a particular price.
  • State the law of demand.
    When the price of a good goes up, quantity demanded goes down; when price goes down, quantity demanded goes up, ceteris paribus.
  • What are the substitution and income effects in demand?
    Substitution effect: higher price makes other goods more attractive. Income effect: higher price reduces purchasing power, lowering quantity demanded.
  • What is the difference between a change in quantity demanded and a change in demand?
    Change in quantity demanded is movement along the demand curve due to price change; change in demand is a shift of the entire demand curve caused by other factors.
  • Name six factors that can change demand.
    Prices of related goods, expected future prices, income, expected future income and credit, population, and preferences.
  • How do substitutes affect demand?
    If the price of a substitute rises, demand for the related good increases; if the substitute's price falls, demand decreases.
  • How do complements affect demand?
    If the price of a complement rises, demand for the related good decreases; if the complement's price falls, demand increases.
  • What is the law of supply?
    When the price of a good rises, quantity supplied increases; when price falls, quantity supplied decreases, ceteris paribus.
  • What causes a change in supply versus a change in quantity supplied?
    Change in supply is a shift of the supply curve due to factors other than price; change in quantity supplied is movement along the supply curve caused by price changes.
  • List six factors that can change supply.
    Prices of factors of production, prices of related goods produced, expected future prices, number of suppliers, technology, and the state of nature.
  • What happens to supply if the price of a factor of production increases?
    Supply decreases because production becomes more expensive.
  • What are substitutes and complements in production?
    Substitutes in production are goods made with the same resources; if the price of one rises, supply of the other falls. Complements in production are goods produced together; if the price of one rises, supply of the other rises.
  • How do expected future prices affect current supply?
    If expected future prices rise, producers supply less today to sell more later; if expected future prices fall, producers supply more today.
  • What is market equilibrium?
    The equilibrium price is where quantity supplied equals quantity demanded; equilibrium quantity is the amount bought and sold at that price.
  • What happens when there is a shortage in the market?
    Quantity demanded exceeds quantity supplied, causing producers to raise prices until equilibrium is restored.
  • What happens when there is a surplus in the market?
    Quantity supplied exceeds quantity demanded, causing producers to lower prices until equilibrium is restored.
  • How do simultaneous increases in demand and supply affect equilibrium quantity and price?
    Quantity increases, but the effect on price is uncertain without more information.
  • How does an increase in population affect demand?
    An increase in population increases demand for most goods.