Microeconomics Chapter 3 Flashcards
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Questions and Answers

What is a market economy?

  • An economy controlled by the government
  • An economy based on bartering
  • An economy where all goods are centralized
  • An economy based on private decisions (correct)

    • What is a market?

    Buyers and sellers who trade a particular good or service.

    What defines a competitive market?

    A market in which fully informed, price-taking buyers and sellers easily trade a standardized good or service.

    What is a standardized good?

    <p>A good for which any two units have the same features and are interchangeable.</p> Signup and view all the answers

    A competitive market must have these four things: standardized goods, full information, no ________, and price-taking participants.

    <p>transaction costs</p> Signup and view all the answers

    What are transaction costs?

    <p>The costs incurred by buyers and sellers in agreeing to and executing a sale of goods or services.</p> Signup and view all the answers

    Price takers have the power to affect the market price.

    <p>False</p> Signup and view all the answers

    What is full information in a market context?

    <p>Market participants know everything about the price and features of the good.</p> Signup and view all the answers

    What is a demand schedule?

    <p>A table that shows the quantities of a particular good or service that consumers will purchase at various prices.</p> Signup and view all the answers

    What is a demand curve?

    <p>A graph that shows the quantities of a particular good or service that consumers will demand at various prices.</p> Signup and view all the answers

    Nonprice determinants of demand include consumer preferences, the price of related goods, ________, expectations of future prices, and the number of buyers in the market.

    <p>incomes</p> Signup and view all the answers

    What are consumer preferences?

    <p>Personal likes and dislikes that influence a buyer's willingness to purchase a good.</p> Signup and view all the answers

    What are substitutes and complements?

    <p>Substitutes are goods that can replace one another; complements are goods consumed together.</p> Signup and view all the answers

    What is the impact of incomes on demand?

    <p>Normal goods see increased demand as income increases; inferior goods see decreased demand as income increases.</p> Signup and view all the answers

    What role do expectations play in demand?

    <p>Expectations about future price changes can either increase or decrease current demand.</p> Signup and view all the answers

    What does the number of buyers in the market represent?

    <p>The number of potential buyers affects the overall market demand.</p> Signup and view all the answers

    Shifts in demand curves happen due to nonprice determinants.

    <p>True</p> Signup and view all the answers

    A change in price leads to a shift in the demand curve.

    <p>False</p> Signup and view all the answers

    What is quantity supplied?

    <p>The amount of a particular good or service that producers will offer at a given price.</p> Signup and view all the answers

    What is the law of supply?

    <p>Quantity supplied rises as price rises, all else being equal.</p> Signup and view all the answers

    Higher prices lead to a decrease in the quantity produced by suppliers.

    <p>False</p> Signup and view all the answers

    What is a supply schedule?

    <p>A table that shows the quantities of a particular good or service that producers will supply at various prices.</p> Signup and view all the answers

    What is a supply curve?

    <p>A graph that shows the quantities of a particular good or service that producers will supply at various prices.</p> Signup and view all the answers

    Nonprice determinants of supply include prices of related goods, ________, prices of inputs, expectations, and the number of sellers.

    <p>technology</p> Signup and view all the answers

    How do prices of related goods affect supply?

    <p>If the price of related goods increases, producers may shift production to that good, affecting overall supply.</p> Signup and view all the answers

    How does technology influence supply?

    <p>Improved technology enables more efficient production and can result in an increased supply.</p> Signup and view all the answers

    What is the effect of the prices of inputs on supply?

    <p>When input prices rise, supply decreases; when input prices fall, supply increases.</p> Signup and view all the answers

    What role do expectations play in supply?

    <p>Expectations about future prices can influence current production decisions.</p> Signup and view all the answers

    How does the number of sellers affect supply?

    <p>More sellers in the market generally lead to an increase in supply; fewer sellers result in a decrease.</p> Signup and view all the answers

    Study Notes

    Market Economy

    • Defined as an economy where private individuals make decisions rather than a centralized authority.

    Market

    • Comprises buyers and sellers trading a specific good or service.

    Competitive Market

    • Characterized by price-taking buyers and sellers trading standardized goods or services.

    Standardized Good

    • Goods that are interchangeable; all units possess identical features, e.g., gasoline from different stations performs the same function.

    Requirements for Competitive Market

    • Must include standardized goods, full information, no transaction costs, and price-taking participants.

    Transaction Costs

    • Costs incurred by buyers and sellers during the agreement and execution of sales; ideally minimized in a market exchange.

    Price Takers

    • Buyers and sellers with no influence on market prices, accepting the prevailing market price.

    Full Information

    • All market participants possess complete knowledge regarding prices and product features.

    Demand Schedule

    • A tabulated representation showing quantities consumers are willing to purchase at various prices.

    Demand Curve

    • A graphical depiction of the relationship between the price of a good and the quantity demanded by consumers.

    Nonprice Determinants of Demand

    • Influences such as consumer preferences, prices of related goods, income levels, expectations regarding future prices, and number of buyers.

    Consumer Preferences

    • Personal inclinations that affect a buyer’s willingness to purchase a good.
    • Includes substitutes (goods used in place of one another) and complements (goods consumed together).

    Incomes

    • Demand is categorized into normal goods (demand increases with income) and inferior goods (demand decreases with income).

    Expectations

    • Influences consumer behavior; anticipated future price changes can delay or hasten purchases.

    Number of Buyers

    • The demand curve illustrates demand based on the existing number of potential buyers in the market.

    Key Point on Nonprice Determinants

    • Shifts in the demand curve indicating an increase or decrease in demand occur when nonprice factors change.

    Key Point on Price Changes

    • Movement along the demand curve indicates a change in quantity demanded resulting from price changes.

    Quantity Supplied

    • Refers to the amount a producer is willing to offer for sale at a specific price in a designated time period.

    Law of Supply

    • States that, all else equal, quantity supplied increases as price increases.

    Key Point on Price and Supply

    • Higher prices incentivize producers to sell more of a specific good.

    Supply Schedule

    • A table that outlines how much of a good producers will supply at differing prices.

    Supply Curve

    • A graph illustrating quantities producers will supply at various price levels.

    Nonprice Determinants of Supply

    • Factors such as prices of related goods, technological advances, input costs, expectations, and the number of sellers.
    • If the price of an alternative good rises, a producer may shift production, adjusting supply accordingly.

    Technology

    • Advances in technology lead to more efficient production, reducing costs and increasing supply at every price level.

    Prices of Inputs

    • Rising input costs lead to decreased supply, while a decrease in input costs results in increased supply.

    Expectations (Supply)

    • Suppliers adjust production based on expectations of future price movements.

    Number of Sellers

    • An increase in the number of producers raises the overall market supply, while a decrease lowers it.

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    Test your knowledge of key concepts from Microeconomics Chapter 3 with these flashcards. Each card presents a term along with its definition to help reinforce your understanding of market structures and economic principles.

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