56 terms

Chapter 3 terms

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Market Economy
An economy organized by private individuals rather than a centralized planning authority.
market
buyers and sellers who trade a particular good or service
Competitive market
Price taking buyers and sellers easily trade a standardized good or service.
Standardized good
a good or service for which any two units of it have the same features and are interchangeable.
Transaction costs
costs incurred by buyer and seller in agreeing to and executing a sale of goods or services.
Price taker
No individual seller has the power to change the market price. Basically a buyer or seller who cannot affect the market place.
demand
how much of something people are willing and able to buy under certain circumstances.
Characteristics of A Private Market
Full info, no transaction costs, std. good, and price-taker,
Shifts
A shift in a demand or supply curve occurs when a good's quantity demanded or supplied changes even though price remains the same.
The Law of Demand
if all other factors remain equal, the higher the price of a good, the less people will demand that good.
demand curve
a graph that shows the quantities of a particular good or service that consumers will demand at various prices
Movement on a demand curve
occurs when a change in the quantity demanded is caused only by a change in price, and vice versa.
Shift on a supply or demand curve
a change in supply for a reason other than a change in price.
law of supply
the supply increases as the price increases, and falls when prices fall.
Movement on a supply curve
a change in supply as a result of a change in price
price acts as a signal between buyers and sellers trying to match demand with supply (True or false?)
true
What does the demand curve represent?
The relationship between price and quantity demanded with everything else held constant.
Characteristics of a competitive market include:
Standardized good, price taker, full information, no transaction costs.
What are the five major categories of nonprice determinants?
Consumer preference, the price of related goods, incomes, expectation of future prices, and the number of buyers in the market.
Determinants of supply
Prices of related goods (affects opportunity cost of production), technology (enables firms to produce more efficiently while using fewer resources), price of inputs (when the prices of inputs rise, production costs rise), and expectations (just expectations about general prices of the future).
Complements
Related goods that are purchased together. When the prices of a good rises, the demand for its complement will fall because consumers won't want to use the complement alone.
Substitutes
two goods that could be used for the same purpose. If the price of one substitute rises, then demand for the substitute is likely to rise.
Normal goods
An increase in income causes an increase in demand. A cell phone is a normal good. (or a decrease income causes a decrease in demand for a certain good)
Inferior goods
As income decreases, demand decreases. Ramen noodles gets replaced with spaghetti, once one's income rises.
Expectations
Changes in consumers expectations about the future, especially future prices, can affect demand.
Number of buyers
The particular number of potential buyers. When the number of buyers increases, demand decreases (false).
The demand curve shifts left or right when one of the five nonprice determinants changes. (True or false)
True. Nonprice determinants affect the quantity demanded at each price.
When nonprice determinants affect the quantity supplied at each price
the supply curve shift
What do you have in a competitive market?
Full information about the price and features of the good being bought and sold.
What happens when there are no transaction costs?
You don't have to pay anything for the privilege of buying or selling in the market.
If we add up all the individual choices, we get overall ____ demand.
Market
The quantity demanded is?
A point on the demand curve.
When something goes on sale, does the quantity of demand increase because the price has fallen?
Yes
equilibrium
a situation in which the quantity demanded and supplied are equal
An increase in demand shifts the demand curve to the right, pushing the equilibrium point up along the supply curve. (True/False)
True
An increase in supply shifts the supply curve to the right, pushing the equilibrium point down along the demand curve (True/False)
True
equilibrium price
the market price where the quantity of goods supplied is equal to the quantity of goods demanded
Quantity supplied
the amount of a particular good or service that producers will offer for sale at a given price during a specified period.
Quantity demanded
The amount of a particular good or service that buyers in a market at a given price during a specified period.
Increase/decrease in demand
a change in a nonprice determinant - a shift of the entire demand curve.
Increase/decrease in quantity of demand
movement along the demand curve.
When a nonprice determinant of supply changes, the entire supply curve will not shift (true/false)
False. The supply curve will shift.
A change in nonprice determinant increases or decreases _____ while a change in price increases or decreases the _____.
supply, quantity supplied
ceteris paribus
all other things being the same - a saying used by economists in their analysis of the economy because the impact of a change on a single variable is far easier to predict.
The concept of supply describes how good of a service
producers will offer for sale under givencircumstances
A supply schedule that shows the quantities of a particular good or service that producers are willing to pay at various prices.
true
The price of related goods determines supply because it affects the
opportunity cost of production
improved technology causes quantity supplied to
increase at each price.
The entire supply curve will shift when there is
a change in non determinant of supply
The non-price determinants of supply that shift supply include
changes in: technology, prices of inputs, number of sellers, prices of related goods, and producer expectations
Market equilibrium
the convergence of the supply curve and the demand curve, comes to a single point (equilibrium price, also called the market clearing price "every seller finds a buyer") and the quantity at this point is equilibrium quantity.
When demand increases and supply decreases, buyers are willing to pay more for the same quantity. Sellers are willing to sell the same quantity only if they receive a higher price.
Buyers are willing to buy the same quantity only if the price is lower, and the sellers are willing to supply the same quantity but at a lower price.
At any price below or above the equilibrium price
money-making incentives drive the market toward the equilibrium price.
When supply and demand, we can predict the direction of the change in _____ but not the direction of the change in _____.
quantity, price
The downward sloping curve reflects the trade-offs that people face between the _____ they expect from a good and the ____ cost of buying it.
benefit, opportunity
The demand curve will shift when
the consumers opportunity costs of buying the goods decreases and the benefit consumers expect to receive from a good, increases
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