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Microeconomics Chapter 3
Terms in this set (60)
__________ is an economic model, designed to explain how prices are determined in certain types of markets.
Supply and Demand
A __________ is a group of buyers and sellers with the potential to trade with each other.
_________ is the collection of markets.
_________ is combining a group of distinct things into a single whole.
In economics ________ can be defined broadly or narrowly depending on its purpose.
In ___________ goods and services are aggregated to the highest levels. They lump all consumer goes into one category "consumption goods."
_______ defines markets more narrowly. Instead of asking how much we will spend on consumer goods, we will ask how much we spend on video games.
A simple model that shows how goods, resources, and dollar payments flow between households and firms.
Circular Flow Model
What is the category of markets where goods and services are bought and sold?
What is the category of markets where labor, land, and capital are bought and sold?
What are imperfectly competitive markets?
Markets where one type of market, individual buyers or sellers have some control over the price of the product. Markets in which the individual buyers or sellers can control or influence the price.
What is a perfectly competitive market?
A market where each buyer and seller is confronted with a market price that they can do little or nothing about. Each buyer and seller takes the market price as given.
The _____________ model is designated to show how prices are determined in perfectly competitive markets.
Supply and Demand Model
In _________ markets, there are many buyers and sellers that are each very small relative to the total markets.
Perfectly Competitive Markets
In __________ markets, individual buyers and sellers can be a relatively large part of the market, or else the product of each seller is unique in some way.
Imperfectly Competitive Markets
See circular Flow Diagram
Page 54 of textbook
The ___________ of a good or service is the number of units that all buyers in a market would choose to buy over a given time period, given the constraints that they face.
What implies a choice, is hypothetical, and depends on price?
Quantity demanded and quantity supplied
Does a change in price affect quantity demanded?
Prices and goods are __________ related: that is, when prices rises, quantity demanded falls; when prices falls, quantity demanded rises. This negative relationship is observed so regularly in markets that economists call it ______________.
Negatively, the Law of Demand
_______ states that when the price of a good rises and everything else remains the same, the quantity demanded of the good demanded will fall.
The Law of Demand
What does ceteris paribus mean?
All else the same or all else remaining unchanged
What causes a movement along the demand curve?
A change in the price of the good
A change in any variable that affects demand-- except for the good's prices causes the demand curve to ______.
When the change in the price of a good moves us along a demand curve, we call it a change in ___________.
The quantity demanded
What is a change in demand?
A shift of a demand curve in response to a change in some variable other than price.
What is a normal good?
A good that people demand more of as their income rises.
What is an inferior good?
A good that people demand less of as their income rises.
A _____ in income will increase the demand for a normal good, and decrease the demand for an inferior good.
Although ________ and _________ are different, they have similar effects on demand.
Income and wealth
What will shift the demand curve?
Income, wealth, prices of related goods, population, expected price, tastes, other shift variables (government subsidies,
____________ is the number of units of a good that all sellers in the market would choose to sell over some time period, given the constraints that they face.
Price and _______ are positively related.
The ________ states that when the price of a good rises, and everything else remains the same, the quantity of the good supplied will rise.
Law of Supply
What is a supply schedule?
A list showing the quantities of a good or service that firms would choose to produce and sell at different prices, with all other variables held constant.
What causes a movement along the supply curve?
A change in the price of a good
A change in any variable that affects supply-- except for the good's price-- causes the supply curve to ______.
What is a change in the quantity supplied?
A movement along a supply curve in response to a change in price.
What is a change in supply?
A shift of a supply curve in response to a change in some variable other than price.
What are the causes of the change in supply?
Input prices, prices of alternatives, technology, number of firms, expected price, changes in weather and other natural events, other shift variables
What are alternative goods?
Other goods that firms n a market could produce instead of the good in question.
What is an alternate market?
A market other than the one being analyzed in which the same good could be sold.
When does the supply shift leftward?
price of input increases, price of alternative increases, number of firms decreases, expected price increases, unfavorable weather
When does the supply shift rightward?
price of input decreases, price of alternative decreases, number of firms increases, expected price decreases, favorable weather
When does it move leftward along the supply curve?
When prices decrease
When does it move rightward along the supply curve?
When prices increase
income/wealth increases, price of substitute increases, price of complement decreases, population increases, expected price rise, tastes shift toward good. All of these will cause?
Demand curve to shift rightward
ncome/wealth decreases, price of substitute decreases, price of complement increases, population decreases, expected price decrease, tastes shift away good. All of these will cause?
Demand curve will shift leftward
What will cause the demand curve to move rightward along?
What will cause a movement leftward along the demand curve?
What is the equilibrium price?
the market price that, once achieved, remains constant until either the demand curve or the supply curve shifts.
What is the equilibrium quantity?
The market quantity bought and sold per period that, once achieved, remains constant until either the demand curve or supply curve shifts.
What is excess demand?
At a given price, the amount by which the quantity demanded exceeds the quantity supplied.
Excess demand will cause the price to ________.
Quantity supplied exceeds quantity demanded
A rightward shift of the demand curve causes a movement along the supply curve.
Equlibrium price and quantity both rise.
Leftward shift of the supply curve causes a leftward movement along the demand curve.
How do economists analyze price changes in several markets? (three steps)
Step one- characterize the market
Step two- find the equilibrium
Step three- What happens when things change (government policies change the market equilibrium
What is the spot market?
Where barrels of crude oil are bought and sold.
A rightward shift in demand with no shift in supply causes both price and quantity to rise.
Recommended textbook explanations
Principles of Microeconomics
N. Gregory Mankiw
Glencoe Economics: Principles and Practices
Gary E. Clayton
Campbell R. McConnell, Sean M. Flynn, Stanley L. Brue
Intermediate Microeconomics: A Modern Approach
Hal R. Varian
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