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Supply and Demand
Chapters 1-3
64
Economics
Undergraduate 2
12/13/2010

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Cards

Term
Scarcity
Definition
a situation in which unlimited wants exceed the limited resources available to fulfill those wants
Term

Three Key Economic Ideas

Definition

1.people are rational

2.people respond to economic incentives

3.optimal decisions are made at the margin

Term
Market
Definition
a group of buyers and sellers of a good or service and the institution or arrangement by wihch they come together to trade
Term
Peole are Rational
Definition
  • economists assume that consumers and firms use all information as they act to achieve their goals
  • weight the benefits and costs of each action and they choose an action only if the benefits outweighs the cots
Term
People Respnd to Economic Incentives
Definition
  • economists emphasize that consumers and firms consistently respond to economic incentives
Term
Optimal Decisions are Made at the Margin
Definition

reason is to continue any activity up to the point where the marginal benefit euals the marginal cost-> MB=MC

(Marginal Analysis)

Term
Marginal Analysis
Definition
comapring marginal benefits to marginal costs
Term
Trade-Off
Definition
The idea that becasue of scarcity, producing more of one good or servicemeans producing less of another good or service
Term
Trade-Off force society to answer three questions:
Definition
  1. what goods and services will be produced
  2. How will the goods and services be produced
  3. who will receive the goods and seriveces produced
Term
Market Economy
Definition
The decisions of households and firms interacting in markets allocate ecnomic resources
Term
Centrally Planned Economy
Definition
The goverment decides how eceonomis resources will be allocated
Term
Mixed Economy
Definition
most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources
Term
Five Steps to Develope a Model
Definition
  1. decide on the assumptions to use in developing the model
  2. formulate a testable hypothesis
  3. use economic data to test the hypothesis
  4. revise the model if it fails to explain well the economic data
  5. retain the revised model to help answer similar ecnonmic questions in the future
Term
Production Possibilities Frontier
Definition
A curve showing the maximum attainable combinationa of two products that may by produced with available resources and current technology
Term
Factors or Production
Definition
  • workers
  • capital
  • natural resources
  • entrepenuerial ability
Term

Efficiency [image]

Definition
  • B,A-efficient because the maximum output is being obtained from the available resources
  • D-inefficient because some resources are not being used
  • C-unattainable with current resources
Term

If linear,[image]

Definition
Opprotunity costs are constant as more of one good is produced
Term
The Slope of a PPF Measures:
Definition
The opprotunity cost of producing one more unit of a good
Term
 The PPF is Negatively Sloped Straight line When:
Definition
When the opprotunity costs are constant
Term
An outward shift of a nation's PPF represents:
Definition
Economic Growth
Term
A Circular Flow Model Demonstrates:
Definition
The roles played by households and firms in the market system
Term
Circular Flow Diagram
Definition
[image]
Term
A Critical Function of the Gov. in Facilitating the Operation of a Market Economy is:
Definition
Setting up and enforcing provate property rights
Term
Increase of price, the quantity demanded is:
Definition
A decrease in quatity demanded
Term
Law of demand
Definition
holding everything else contant, when the price of a product falls, the quantity demanded of the product will incresase and opposite
Term
The Deman Curve Shift to the RIGHT when:
Definition
demand had increase
Term
A Change in Which Variable will Change the Market Demand for a Prodcut
Definition
Expected Future Prices
Term
What will NOT Shift the Demand Curve for a Good
Definition
and increase in consumer incomes
Term
Inferior Good
Definition
a good for which the demand increases as income falls and decreases when income rises
Term
Normal Good
Definition
demand increases as imcome rises and decreases as income falls
Term
Variables that Shift the Market Demand Curve
Definition
  • income
  • proces of related goods
  • tastes
  • population and demographics
  • ecpected future prices
Term
Increase in Income (good is normal)
Definition
  • shifts to the right
  • consumers spend more of their higher incomes on the good
Term
Increase in Income (good is inferior)
Definition
  • shifts to the left
  • consumers spend less of their higher incomes on the good
Term
Increase in the Price of a Substitute Good
Definition
  • shifts to the right
  • consumers buys less of the substitutes and more on this good
Term
Increase in the Price of a Complementary Good
Definition
  • shifts to the left
  • consumer buys less of the complementary good and less of this good
Term
Increase in Taste for the Good
Definition
  • Shifts to the right
  • consumers are willing to buy a larger quantity of the good at every price
Term
Increase in Population
Definition
  • shifts to the right
  • additional consumers result in a greater quantity demanded at every price
Term
Increase in the Expected Price of the Good in the Future
Definition
  • shifts to the right
  • consumers buy more of the good today to aviod the higher pirce in the future
Term
A shift (moves right or left) in the Demand Curve is a:
Definition
a change in demand
Term
A Movement (up or down) Along the Demand Curve is a:
Definition
a change in quantity demanded
Term
Law of Supply
Definition
holding everything constant, increases in price cause increases in the quantity supplied, and opposite
Term
Variables that Shifts the Market Supply Curve
Definition
  • prices of inputs
  • technological change
  • prices of substitutes in production
  • number of firms int he market
  • expected future prices
Term
Increase in the Price of an Input 
Definition

shifts S curve to the left

  • the costs of producing the good rise
Term
Increase in Productivity
Definition
  • shifts S curve to the right
  • the costs of producing the good fall

 

Term
Increase in the Number of Firms in the Market
Definition
  • shifts the S curve to the right
  • additional firms result in a greater quantity supplied at every price
Term
Increase in the Expected Future Price of the Product
Definition
  • shift in the S curve to the left
  • less of the good willbe offered for sale today to take advantage of the higherprice int he future
Term
A Shift in the Supply Curve is a:
Definition
change in supply
Term

A Movement Along the Supply curve is a:

 

Definition
change in the quantity supplied
Term

Surplus and shortages[image]

Definition
  • Above equilibrium is a surplus
  • Below Equilibriumis a shortage
Term
Surplus
Definition
quantity supplied is greater than the quantity demanded
Term
Shortage
Definition
quantity demanded is greater than the quantity supplied
Term
[image]
Definition
As income grows, deman shifts to the right →increases the equilibrium price(p1→p2) →and also inseases the equilibirum quantity (q1→q2)
Term
[image]
Definition
As Coca-Cola enters the Market for energry drinks, the supply curve shifts tot he right→decreases the equilibrium price(p1→p2) →and increases the equilibrium quantity (q1→q2)
Term
[image]
Definition

1st Graph:

Supply has shifted to the right more than demand(s1→s2, d1→d2)→so the equilibrium price has decreased(p1→p2)

 

and opposite

Term
Demand Curve Unchanged and Supply cuve Unchange
Definition

Q unchanged

P unchanged

Term

Demand Curve Shifts to the Right

and

Supply Curve Unchanged

Definition

Q increases

P increase

Term

Demand Curve Shift to the Left

and

Supply Curve Unchanged

Definition

Q decreases

P decreases

Term

Demand Curve Unchanged

and

Supply Curve Shifts to the Right

Definition

Q increases

P decreases

Term

Demand Curve Shifts to the Right

and

Supply Curve Shifts to the Right

Definition

Q increases

P Increases or Decreases

Term

Demand Curve Shifts to the Left

and

 Supply Curve Shifts to the Right

Definition

Q increases or decreases

P decreases

Term

Demand Curve Unchanged

and

Supply Curve Shifts to the Left

Definition

Q decreases

P increases

Term

Demand Curve Shifts to the Right

and

Supply Curve Shifts to the Left

Definition

Q increases or decreases

P increases

Term

Demand Curve Shifts to the Left

and

Supply Curve Shifts to the Left

Definition

Q decreases

P increases or decreases

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