Ch. 3 - Markets, Demand, and Supply, and the Price System
Economics 211 with Filer at Arizona State University - Tempe
About this deck
By: Matthew Liu
Textbook:
Macroeconomics (Text only)
Created: 2012-01-31
Size: 53 flashcards
Views: 26
Textbook:
Macroeconomics (Text only)Created: 2012-01-31
Size: 53 flashcards
Views: 26
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Markets are...
Places or services that enable buyers / sellers to exchange goods and services
How many Allocation Systems are there? What are they?
FOUR!!
1. Random
2. First-Come, First Served
3. Government
4. Market
Which Allocation System do we use?
Market System
Why is the Market System used over other allocation systems?
Because the Market System is the ONLY system that through it's incentives, ENCOURAGES the standard of living to RISE
In a government allocation system what are the two incentives?
1. Encourages company to do WHATEVER the government tells them to
2. Encourages participation as member of Gov. AND determine gov. policies
Quantity Supplied [QS] is _______ related to Price
DIRECTLY
Quantity Demanded [QD] is _______ related to Price
INVERSELY
Pistols and Rifles are substitutes. When the price of pistols rises, what happens to the price of rifles?
The price of rifles RISES too
Substitutes are ALWAYS directly related to each other in price
Bananas and Vanilla Ice Cream are complementary goods. The price of Bananas has DROPPED drastically, what happens to the price of Vanilla Ice Cream?
The price of Vanilla Ice Cream RISES (opposite)
Complements are ALWAYS inversely related to each other in price
T/F: On a supply curve, the vertical axis is always price
TRUE!!!
The vertical axis is ALWAYS price
The horizontal axis is ALWAYS the Quantity (demanded / supplied)
Roger, is a tax auditor. Because of his job performance, he is given a raise. Does this mean he will buy inferior goods OR normal goods?
Clearly:
- Roger has had an INCREASE in income
- When income goes UP, people tend to buy normal goods OVER inferior goods
Income ^ = Normal Goods > Inferior Goods
T/F: On a demand curve, the curve (line) is always going downwards
true!
Likewise, on a supply curve, the curve (line) is ALWAYS going upwards
T/F: A change in demand will cause what change on the graph?
SHIFT! (left / right)
On a graph, what causes the point to "move along" a curve?
A change in QUANTITY supplied OR a change in QUANTITY demanded
T/F: Scarcity is ONLY temporarily. Everyone will be allocated something.
FALSE.
Scarcity will ALWAYS exist
Someone will ALWAYS be left out because of scarcity
What is the incentive of the First-come, First-served allocation system?
Being First
T/F: There are MANY incentives to a RANDOM allocation system
FALSE.
There are none
What are the two main incentives of the market system?
1. Obtaining WEALTH
2. Developing / expanding PURCHASING POWER
The incentives of the market system are: wealth and purchasing power. How do these affect the whole market?
- Causes quality of goods / services, and labor to INCREASE
- Causes quantity of SCARCE goods / services to INCREASE
What is Arbitrage?
Arbitrage is a process involving the "simultaneous buying and selling of goods in different markets in order to take advantage of differing prices for the same asset
What fact drives the market?
People are ALWAYS looking for the best deal
THINK: Rational Self-Interest (RSI)
Are any of the four allocation systems fair?
NO!
None of them are fair, in terms of everyone gets an equal portion
________ is the only allocation system where the standard of living RISES!
Market
_______ is the measure of the opportunity cost
PRICE
( Money / Bartering ) provides an EASIER and BETTER way to exchange goods and/or services
MONEY!!
Are double coincidences of wants very common?
NO, NOT AT ALL
They are very rare
Double Coincidence of Wants, is when both sides in a trade/barter wants what the other has
Define: Double Coincidence of Wants
When both sides in a barter WANTS what the other has
NOTE: These are VERY RARE
Difference: Quantity Demanded (QD) v. Demand
QD = When people want and are able to purchase a good or service during a period of time at a SPECIFIC price
Demand = " " " at ANY price
"When producers want and are able to produce a specific good during a period of time at a SPECIFIC price" describes what term?
Quantity Supplied
The Law of _____ states: "the quantity of a well-defined good or service that people have demand for during a period of time: D v = P ^ ; D ^ = P v
Demand
The Determinants of demand are TENPI or PRENT?
TENPI!
Taste
Expectations
Number of buyers
Price of related goods / services
Income
T/F: Demand: In TENPI, the I is interest
FALSE!
"I" is NOT interest
"I" IS income
What are the determinants of supply?
PRENT
Price of related goods / services
Resources used to produce goods
Expectations of producers
Number of producers
Technology / Productivity
T/F: On a supply curve, market supply implies the: "sum of all prices."
false
On a supply curve, market supply is the sum of all individual producer quantities supplied
What are the two conditions of the law of demand?
1. Must be AT a specific time
2. Everything else is held CONSTANT
What is the "sum of all quantities demanded"? What sort of curve is this on?
Market Demand is the sum of all quantities demanded
This is shown on a demand curve
If the price of CD (compact disk) players is suddenly cut in half due to a technological innovation, what is likely to happen to the demand for CDs?
THINK: This is CD players and CDs, these are complementary goods (INVERSE)
Answer: The Demand curve for CDs will SHIFT outwards
(as in... demand of CDs will rise!, while the pricing of CD Players will FALL
T/F: The "E" in PRENT stands for expectations of buyers?
FALSE.
It stands for expectations of producers
A table or list of prices and their related quantity supplied of a good / service is _______
Supply Schedule
On a supply curve the horizontal axis is ________ ________
Quantity Supplied
On a demand curve the vertical axis is _________
Price
More Suppliers = ______ Supplied
More
What is Equilibrium?
Is the price and quantity at which quantity demanded and quantity supplied are EQUAL
"Prices at which quantity demanded and quantity supplied are NOT EQUAL at a particular price" describes...?
Disequilibrium
What is a surplus?
When the Quantity Supplied is HIGHER than the Quantity demanded
QS > QD
Define: Shortage
When Quantity Demanded is HIGHER than the Quantity Supplied
QD > QS
When the specific price for a good is higher than the equilibrium price, a (shortage / surplus) occurs
SURPLUS
THINK: of a demand curve and as price ^, the QD must move back. Therefore P ^ = QD vBecause the price has gone up, LESS people want to purchase that good, and demand goes down
We are selling corn. The equilibrium is $4 for every bushel. The price has gone down to $3 for every bushel. Does this cause a shortage OR surplus?
SHORTAGE!
THINK: of a supply curve and as price v (DROPS), the QD ^ (RISES)
Because the price has gone down, MORE people want to purchase that good, and demand goes UP
What are examples of market interference?
- Price Ceilings
- Price Floors
In Spain, the market price of flour is $1.00 for a bag. The government adds regulation to prevent farmers from selling below desired value @ $2.00.
The government has interfered into the market with a Price Floor
This means that people cannot sell below this price. The price floor is the LOWEST possible price for that good
In LA, the highest rent for an appt. is $2,000 a month. To prevent prices from going too HIGH, the government has put the max at $1700. What is this?
This is a Price Ceiling
The price cannot go above the price ceiling, thus the PC becomes the MAX PRICE
What is the significance of the "price of eggs" example?
When, the price ceiling (gov.) is lifted on eggs the:
1. Price of eggs SKYROCKETS at first
2. Some shortages occurred (HIGH PRICE, but not enough QS)
3. As the QS ROSE, the price DROPPED to equilibrium
How many factors are there in Market Adjustments?
1. The SPEED of goods / services can be ALTERED (after gov. removed)
2. The SPEED of goods / services PRODUCED (QS)
3. The SPEED of supplies being brought to the market (QS)
About this deck
By: Matthew Liu
Textbook: Macroeconomics (Text only)
Created: 2012-01-31
Size: 53 flashcards
Views: 26
Textbook:
Macroeconomics (Text only)Created: 2012-01-31
Size: 53 flashcards
Views: 26
About StudyBlue
STUDYBLUE makes things that make you better at school.
Things like online flashcards with photos and audio.
Things like personalized quizzes and friendly reminders about when (and what) to study next.
Think of it as a digital backpack™: access to all of your study materials online and on your phone.
STUDYBLUE exists to make studying efficient and effective for every student, for free. Join us.
“I have been getting MUCH better grades on all my tests for school. Flash cards, notes, and quizzes are great on here. Thanks!”
Kathy
Kathy