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Microeconomics Vocab
| Question | Answer |
|---|---|
| Market | A group of buyers and sellers of particular good or service. |
| Buyers | Determine the demand for the product |
| Sellers | Determine the supply of the product |
| Competitive market | A market in which there are so many buyers and so many sellers that each has a negligible impact on the market price. |
| For a market to be perfectly competitive, it must have two characteristics: | The goods offered for sale are exactly the same. The buyers and sellers are so numerous that no single buyer or seller has any influence over the market price. |
| Price takers | Buyers and sellers must accept the price the market determines. |
| Monopoly | Some markets have only one seller, and this seller sets the price. |
| Quantity demanded | The amount of the good that buyers are willing and able to purchase. |
| Law of demand | When the price of a good rise, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises. |
| Demand schedule | A table that shows the relationship between the price of a good and the quantity demanded. |
| Shift to the right | Increase in demand |
| Shift to the left | Decrease in demand |
| Normal good | If the demand for a good falls when income falls. |
| Inferior good | If the demand for a good rises when income falls. |
| Substitutes | When a fall in the price of one good reduces the demand for another good. |
| Complements | When a fall in the price of one good raises the demand for another good. |
| Influencers to buyer behavior | Taste, expectations, number of buyers |
| Quantity supplied | The amount that sellers are willing and able to sell |
| Law of supply | When the price of a good rises, the quantity supplied of the good also rises, and when the price falls, the quantity supplies falls as well. |
| Supply schedule | A table that shows the relationship between the price of a good and the quantity supplied. |
| Curve to the right | Increase in supply |
| Curve to the left | Decrease in supply |
| Influencers to supply | Input prices, technology, expectations, number of sellers |
| Equilibrium | Supply and demand curves intersect |
| Surplus/excess supply | Suppliers are unable to sell all they want at the going price |
| Shortage/excess demand | Demanders are unable to buy all they want at the going price |
| Steps to analyze changes in equilibrium | 1. Shift in supply curve 2. Whether the curve shifts right or left 3. Use a supply and demand diagram to compare the initial equilibrium with the new one |
| Price of elasticity of demand | Measures how much the quantity demanded responds to a change in price. |
| Demand for a good is said to be elastic if | the quantity demanded responds substantially to changes in the price. |
| Goods with close substitutes tend to have more elastic demand because | it is easier for consumer to switch from that good to others. |
| Demand for a good is said to be inelastic if | the quantity demanded responds only slightly to changes in the price |
| Necessities tend to have | inelastic demands |
| Luxuries tend to have | elastic demands |
| Narrowly defined markets tend to have | more elastic demand than broadly defined markets |
| Goods tend to have more elastic demand over | longer time horizons |
| formula for price elasticity of demand | percentage change in quantity demand / percentage change in price |
| Midpoint method formula | ((Q2-Q1)/[(Q2+Q1)/2]) / (P2-P1)/[(P2+P1)/2] |
| Demand is considered elastic when the elasticity is | greater than 1 (quantity moves more than price) |
| Demand is considered inelastic when the elasticity is | less than one (quantity moves less than the price) |
| perfectly inelastic (zero inelasticity) means | the demand curve is vertical |
| when elasticity rises, the demand curve | gets flatter and flatter |
| perfect elasticity means | price elasticity of demand approaches infinity and the demand curve becomes horizontal |
| An inelastic curve looks like | the letter I |
| Formula for total revenue | P (price of good) * Q (quantity of good sold) |
| The height under a demand curve represents | p |
| The width under a demand curve respresents | q |
| The area of the box under a demand curve represents | total revenue |
| When demand is elastic (a price elasticity greater than 1) | price and total revenue move in opposite direction |
| When demand is unit elastic (a price elasticity exactly equal to 1) | total revenue remains constant when the price changes |
| Slope in a revenue curve represents | ratio of change over price (rise) / change in quality (run) |
| Elasticity in a revenue curve represents | ratio of percentage change of the two slop variables |
| Low price, high quantity | demand curve is inelastic |
| high price, low quality | demand curve is elastic |
| linear demand curve | illustrates that the price elasticity of demand need not be the same at all points on a demand curve |
| The income elasticity of demand | measures how the quantity demanded changes as consumer income changes. |
| Income elasticity of demand formula | percentage change in quantity demanded / percentage change in income |
| The cross price elasticity of demand | measure how the quantity demanded of one good responds to a change in the price of another good |
| cross-price elasticity of demand formula | percentage change in quantity demand good 1 / percentage change in price of good 2 |
| price elasticity of supply | how much the quantity supplied responds to changes in price |
| price elasticity depends on | the flexibility of sellers to change the amount of the good they produce |
| formula for price elasticity of supply | percentage change in quantity supplied / percentage change in price |
| zero elasticity (perfectly inelastic) means | the supply curve is vertical |
| perfect elasticity means | the supply curve is horizontal |
Created by:
KenzieMWallace105
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