Microeconomics Chapter 4 Flashcards

Questions and Answers

What is a market?

A type of transaction

A type of economic theory

A group of buyers and sellers of a particular good or service (correct)

A place where goods are manufactured

What defines a competitive market?

A market in which there are many buyers and many sellers so that each has a negligible impact on the market price.

What characterizes a perfectly competitive market?

All goods are exactly the same, and buyers and sellers are so numerous that no one can affect market price.

What does quantity demanded refer to?

The amount of a good that buyers are willing and able to purchase. Signup and view all the answers

What is the law of demand?

The claim that, other things being equal, the quantity demanded of a good falls when the price of the good rises. Signup and view all the answers

What is a demand schedule?

A table that shows the relationship between the price of a good and the quantity demanded. Signup and view all the answers

What is a demand curve?

A graph of the relationship between the price of a good and the quantity demanded. Signup and view all the answers

What causes a demand curve to shift?

The number of buyers, income changes, prices of related goods, and tastes. Signup and view all the answers

What happens to quantity demanded when the number of buyers increases?

Quantity demanded increases. Signup and view all the answers

Define normal good.

When incomes increase, quantity demanded for normal goods increases. Signup and view all the answers

Define inferior good.

When incomes increase, quantity demanded for inferior goods decreases. Signup and view all the answers

What are complements?

When the price of one good increases, the quantity demanded for its complement decreases. Signup and view all the answers

What are substitutes?

When the price of one good increases, the quantity demanded for its substitute increases. Signup and view all the answers

What does the term equilibrium refer to in economics?

A situation in which the market price has reached the level at which quantity supplied equals quantity demanded. Signup and view all the answers

What happens in a surplus?

The quantity supplied is greater than the quantity demanded. Signup and view all the answers

What does a shortage indicate?

Quantity demanded is greater than quantity supplied. Signup and view all the answers

Match the following terms with their descriptions:

Equilibrium price = The price that balances quantity supplied and quantity demanded Quantity supplied = The amount of a good that sellers are willing and able to sell Law of supply = The claim that, other things being equal, the quantity supplied rises when the price rises Supply curve = A graph of the relationship between the price of a good and the quantity supplied Signup and view all the answers

Study Notes

Market Concepts

A market comprises buyers and sellers of a specific good or service.
A competitive market features many buyers and sellers, each having minimal influence on market prices.
In a perfectly competitive market, goods are identical, and participants are "price takers."

Demand Fundamentals

Quantity demanded is the total amount consumers are willing to buy at a given price.
Law of demand states that, ceteris paribus, higher prices lead to lower quantities demanded.
A demand schedule is a table correlating price points with quantities demanded.
A demand curve visually represents this relationship graphically.

Factors Influencing Demand

Number of buyers: An increase in buyers shifts the demand curve right, increasing quantity demanded.
Income impacts demand differently for normal and inferior goods; demand for normal goods rises with income, while it falls for inferior goods.
Prices of related goods: Price changes affect demand inversely for complements (e.g., hot dogs and buns) and directly for substitutes (e.g., Coke and Pepsi).
Tastes: Shifts in consumer preferences can lead to increased demand for specific goods.
Expectations about future economic conditions can cause immediate changes in current demand for expensive goods.

Supply Fundamentals

Quantity supplied refers to the amount sellers are willing to sell at a specific price.
The Law of supply posits that higher prices lead to greater quantities supplied.
A supply schedule shows the relationship between price and quantity supplied, while a supply curve graphically illustrates this relationship.

Factors Influencing Supply

Input prices: Decreased production costs increase quantity supplied across price points.
Technology: Advancements reduce costs and enhance supply profitability, increasing supply.
Number of sellers: More sellers lead to higher overall supply.
Expectations can affect supply decisions; anticipating future price increases may prompt sellers to reduce current supply.

Market Equilibrium

Equilibrium is achieved when quantity supplied equals quantity demanded.
The equilibrium price balances these two quantities, while the equilibrium quantity is sold at that price.
A surplus occurs when supply surpasses demand, prompting sellers to lower prices to reach equilibrium.
A shortage arises when demand exceeds supply, leading to price increases until balance is achieved.

Analyzing Changes in Equilibrium

To analyze shifts in equilibrium:
- Identify which curve (supply or demand) shifts.
- Determine the direction of the shift (left or right).
- Use diagrams to visualize how these shifts affect equilibrium price and quantity.

Practical Market Scenarios

Increase in gas prices leads to a rightward shift in the demand curve for hybrid cars, increasing both price and demand.
Cost-reducing technology shifts the supply curve for hybrid cars right, resulting in lower prices and increased supply.
A rare scenario where both gas prices rise and technology advances results in increased quantity of hybrids, with price outcomes dependent on shifts in demand versus supply.

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Description

Explore key concepts in Microeconomics with these flashcards focused on Chapter 4. From definitions of market to competitive markets, enhance your understanding of essential terms and principles. Perfect for quick study sessions and exam preparation.