Economics, Section II, Part I: Perfectly Competitive Markets

Of what does our modern economy achieve a high degree?

coordination

Within markets, what is the mechanism that produces economic coordination, serving as the central topic of microeconomics?

the interaction of supply and demand

Within markets, whose actions determine the price at which each product or service cells and the quantity that changes hands?

buyers and sellers

Which kind of markets' behavior serves as the starting point for microeconomics?

perfectly competitive

What are supply and demand determined by?

market participants' self-interested choices

What is a market comprised of?

the buyers and sellers of a particular good or service

Which two markets are considered highly organized?

the New York Stock Exchange and the Chicago Mercantile Exchange

Where do buyers and sellers in organized markets come together?

at a single location

Who helps to set a price at which exchanges take place in a market?

an auctioneer

What can we think of the interactions between buyers and sellers as doing for a market?

constituting it

Who are the sellers in a local gasoline market?

gas stations

Who are the buyers in a local gasoline market?

vehicle owners

What will each of the sellers in the gas market post to attract buyers?

the price per gallon of gasoline

Based on which two factors will buyers select where to fill their tanks in a gas market?

price and convenience

Because gas prices are continually posted at all of the different stations, what will the buyers of gasoline likely be?

well-informed about prices

What determines the price of gasoline and the quantity of it that it is sold?

the combined actions of buyers and sellers

What will happen if an owner of a gas station raises their price above the going price?

customers will go elsewhere

Why doesn't a gas station owner have any reason to lower the price significantly below the going price?

their income will be reduced

For what reason can no one buyer influence the price of gasoline?

they only purchase a small fraction of the market

Which adjective best describes the good or service being bought and sold in a perfectly competitive market?

standardized

Which adjective best describes the number of buyers and sellers in a perfectly competitive market?

large

What are all of the participants in a perfectly competitive market well-informed about?

the market price

In a perfectly competitive market, what do buyers and sellers know they can do without influencing the market price?

buy or sell as much as they wish

While only a few markets precisely conform to the assumptions of perfect competition, what are many real world markets characterized by?

a high degree of competition

What kind of market is exemplified by gasoline?

nearly competitive

What aspect of a good is described by demand?

the amount that buyers are willing and able to purchase

What is one of the most important aspects of a good that determines its demand?

its price

If the price of a good is higher, what will buyers demand of the good?

less of it

If the price of a good is lower, what will buyers demand of the good?

more of it

What is the relationship between a good's price and the quantity demanded called?

the law of demand

What kind of relationship is the law of demand?

negative

What decision made by rational decision-makers using cost-benefit analysis gives arise to the law of demand?

how to allocate their resources

As the price of a good increases, what also increases for consumers?

the opportunity cost

If the price of gasoline rises, what might people find ways to do in order to afford the more expensive good?

reduce the amount they drive

What is a table relating purchases of a good to the price of a good called?

a demand schedule

What is the downward-sloping line in a demand schedule called?

a demand curve

In a demand curve graph, which quantity is represented by the x-axis?

quantity demanded

In a demand curve graph, which quantity is represented by the y-axis?

price

To obtain market demand from two demand curves, in what way do we add them?

horizontally

How is quantity demanded represented in a market demand curve?

as a point

How is demand represented in a market demand curve?

as the entire curve

In a market demand curve, what is only influenced by price?

quantity demanded

In a market demand curve, what can be influenced by many other things?

demand

If a new system of bike lanes is created that makes it easier to travel by bicycle, what will happen to the quantity of gasoline demanded?

it will decline at every price

What is a decline in every price of a good known as?

a decrease in demand

In which direction is a demand curve shifted due to a decrease in demand?

left

Which factor affecting demand relates to the amount of money people receive from their employers?

income

If a buyer has less money to spend on all the things they wish to buy, what will they likely do to their consumption of gasoline?

reduce it

For most goods, in which way is demand related to income?

positively

What are goods that have a demand which is positively related to income called?

normal goods

What are goods for which demand falls as income rises called?

inferior goods

What is a notable example of an inferior good relating to transportation?

bus rides

When a decline in the price of one good causes a reduction in the demand for another, what do we call the goods?

substitutes

When a decline in the price of one good causes an increase in the demand for another, what do we call the goods?

complements

On which two industries are billions of dollars spent globally to alter our interpretation of goods and services?

marketing and advertising

Which three aspects of our interpretation of goods and services are influenced by marketing and advertising?

tastes, trends, and attitudes

As a result of perceived trendiness to a good or service, what are followers of that trend more likely to do?

purchase it

What kind of changes may also affect demand in a premature manner?

expectations

In terms of individual consumer counts, what causes the demand of a good or service to increase?

more consumers

In all, which five factors can create shifts in the market demand curve of a good or service?

income, prices of related goods, tastes, expectations, and the number of buyers

What quantity relating to a good is described by the amount that sellers of that good are willing and able to produce at a given price?

supply

What is the most important factor that influences the quantity of a good that is supplied?

the price that suppliers receive

What is the relationship between price and quantity supplied called?

the law of supply

What kind of relationship is the law of supply?

positive

What strategy used by rational suppliers is reflected by the positive relationship between price and quantity supplied?

cost-benefit analysis

Which three opportunity costs for supplying gasoline do gas station owners compare to the benefits of each gallon sold?

time, effort, and expense

As the price of gasoline rises, what will gas station owners rationally focus on doing?

devoting more resources to supplying gasoline

For gas station owners to be willing to supply gasoline, what needs to exceed their opportunity cost for doing so?

the price they receive

At higher gas prices, what three actions will gas station owners be willing to take to boost sales?

work longer hours, hire additional help, and expand the size of their stations

At lower gas prices, which three actions will gas station owners take?

cut back on the time they spend supplying gas, reduce the number of their employees, and focus on other products

For a gasoline supplier, in which direction does the curve of price against quantity supplied slope?

upward

What is the graph of price against quantity supplied called?

the supply curve

How is quantity supplied represented on a supply curve graph?

as a point

How is supply represented on a supply curve graph?

as the entire curve

What do you have to add together in order to obtain a market supply curve?

all of the individual supply curves

To obtain the market supply curve, in which direction do we add the individual supply curves?

horizontally

What is shown by the market supply curve?

quantity supplied at each price

What are the things that suppliers have to purchase to supply a product called?

inputs

What is the price that gasoline stations must pay their suppliers for gasoline a major cost of?

doing business

If the price that gas stations must pay their suppliers for gasoline falls, what will happen to the supply of gasoline?

it will increase

If the price that gas stations must pay their suppliers for gasoline falls and the supply of gasoline increases, in which direction will the supply curve shift?

to the right

Which three in put costs other than the price that gas stations have to pay to their suppliers are important to maintaining stability in the supply curve?

labor, real estate, and utilities

In addition to inputs, what can affect how businesses operate, and hence the supply?

changes in technology

In the case of gasoline, what did the shift from full-service to self-service pumps do to the labor costs and supply?

increase and decrease, respectively

What technology might pumps have that cause the supply of gasoline to increase?

credit card readers

If suppliers expect prices to rise in the future, then what might they do to the supply today?

reduce it

If suppliers expect prices to rise in the future, what might they do with current inventory in expectation of those future prices?

store it

If a juice company expects the price of juice to rise in the future due to a natural disaster destroying new crops, what will they do now?

store frozen concentrate inventory

As more sellers enter the market, what will happen to the supply?

it will increase

If a seller decides to leave the market for a good, what will happen to the supply?

it will decrease

At what combination of price and quantity is the point at which the market will settle?

equilibrium

In which two fields is equilibrium a widely used concept?

physical and social sciences

What kind of point is equilibrium defined as?

one at which the forces at work in a system are balanced by others

In economics, what kind of situation does a member of an equilibrum market face?

they don't have a reason to change their behavior

At what combination of price and quantity does the market equilibrium occur?

where market supply and demand intersect

Because the supply curve is upward sloping and the demand curve is downward sloping, how many points of intersection do they have?

one

At the point of equilibrium, which groups in a market are satisfied?

both buyers and sellers

What tendency do markets have in relation to the combination of price and quantity that guarantees equilibrium?

to gravitate toward it

If buyers wish to buy less than the sellers are willing to sell, what is the remaining supply called? Provide two terms.

excess or surplus

Under the circumstances of excess supply, what do suppliers have an incentive to do with their price?

lower it a little bit