Macroecon. Exam 2 - Ch. 3&5


Terms in this set (...)

When economists describe a "market" they mean?
A system that allows buyers and sellers to interact with one another
products price
The market demand schedule or curve for a product shows the relationship between how much of the product buyers are willing and able to buy and the
In understanding and analyzing 'demand,' we focus on how much of a product the buyers are
Willing and able to buy
Which of the following is not a determinant of demand
What would be a likely cause of an increase in the demand for pizza?
A health report showing eating pizza reduces stress
If product Y is an inferior good, a decrease in consumer incomes will
Shift the demand curve for product Y to the right
Which of the following is a determinant of supply?
Product taxes and subsidies
Suppose that a more efficient way to produce a good is discovered, thus lowering production costs for the good. This will cause a(n)
increase in supply
What will not cause the supply curve to shift?
A change in the prices of other goods that produces could be producing
If the market price is above the equilibrium price
A surplus will occur and producers will produce less and lower prices
The price elasticity of demand is a measure of the
Responsiveness of buyers of a good to changes in its price
When the price of a product is increased 10% the quantity demanded increases 15%. The price-elasticity of demand coefficient for the product is
If the price-elasticity coefficient for a good is .75, the demand for that good is described as:
Demand is said to be inelastic when
A reduction in price results in a decrease in total revenue
The price-elasticity coefficients are 2.6, 0.5, 1.4, and 0.18 for four different demand schedules D1, D2, D3, and D4. Respectively, a 2 perfect increase price will result in an increase in total revenue for which of the following cases?
D2 and D4.
Behavior of buyers. Behavior is seen in quantity the buyers say their willing to purchase
demand schedule
Will state quantity of how many items a buyers is willing to buy at a certain price
law of demand
Increased prices buyers will buy less goods, decreased prices buyers will buys more of a good
Describes behavior of seller in a market; reflected in quantity they are willing & able to buy
What happens when the quantity supplied exceeds demand?
What will occur if a shortage were to happen?
Prices will increase and sellers will compete with one another.
Price change causes supply demand to change.
What causes supply/demand change?
Everything but price
What would happen to the curve if supply/demand changed?
The curve would shift, thus creating a new equilibrium.
A right shift of the supply/demand curve demonstrates what?
An increase
A left shift of the supply/demand curve demonstrates what?
A decrease
demand shifters?
Change in income, preference, number of buyers, price of related good(s), buyers expectations, and technology
normal good
Any good who's demand changed in the same direction of income change
inferior good
Any good who's demand changed in the opposite direction of income change
If the market price is above the equilibrium price:
Quantity supplied is greater than quantity demanded, creating a surplus.
There is a shortage in a market for a product when:
Quantity demanded is greater than quantity supplied
Indicates that a lower price increases the purchasing power of a buyers money income, enabling the buyer to purchase more of the product than before
Income effect
Suggets that at a lower price buyers have the incentive to substitute what is now a less expensive product for other products that are now relatively more expensive
Substitution effect
Movement from one point to another point- from one price-quantity combination to another- on a fixed demand curve
Change in quantity demanded
As price rises, the quantity supplied rises; as price falls, the quantity supplied falls
Law of Supply
A change in the schedule and a shift of the curve
Change in supply
Movement from one point to another on a fixed supply curve
Change in quantity supplied
Resource prices, technology, taxes and subsidies, prices of other goods, producer expectations, and number of sellers in a market are _______.
Supply determinants
Conflicts that arise when tasks are delegated by one group of people (principals) to another group of people (agents)
Principal-agent problems
In the business world, who are the principals and who are the agents?
Shareholders; company's managers
rent seeking
Appeal to government for special benefits at taxpayers or someone else's expense
unfunded liability
When the government commits to making a series of future expenditures without simultaneously committing to collect enough tax revenues to pay for those expenditures
budget deficit
The amount by which expenditures exceed revenues in any year.
Chronic deficits can be attributed to?
A pair of conflicting incentives that confront politicians. On the one hand, many government programs are highly popular with voters, so that there is almost always political pressure to either maintain or increase spending. On the other hand, hardly anyone likes paying taxes, so there is almost always political pressure to reduce taxes.