Supply & Demand
Why is Demand downward sloping?
1. The Substitution Effect
2. The Income Effect
3. The law of Diminishing Marginal Utility
What are 3 traits of a Monopoly?
1. Single Supplier
2. High Barriers to entry
3. Price Maker
4. Unique Product
5. Some Advertising
What is the difference between monetary and fiscal policy?
Monetary Policy is how the Central Bank controls the economy and Fiscal Policy is how the government controls the economy.
Productions Possibilities Curve
What does GDP stand for
Gross Domestic Product
If the price of a compliment fell, what will happen to supply and demand as a result?
Demand will shift right.
What is Nash Equilibrium?
The optimal outcome that will occur when both firms make decisions simultaneously and have no incentive to change.
What is the discount rate?
The interest rate that the Fed charges commercial banks when commercial banks borrow money.
What does GDP equal?
GDP(y)=C+I+G+(X-M)
If income falls, what will happen to the Demand and Total Revenue for a normal good?
Demand will fall and so will Total Revenue
A perfectly competitive firm should shut down in the short run if the market price is equal to marginal cost and the price is
Less than average variable cost.
What are the 3 tools the Fed has to control the money supply?
1. Discount Rate
2. Open Market Operations
3. Reserve Requirements
What does GDP measure?
$ value of the final goods produced within one year
If supply decreased and total revenue went up as a result what do we know about the elasticity of demand?
The demand must be relatively inelastic.
Assume a profit-maximizing monopoly was subject to a lump sum tax. What will happen to price and quantity?
Price and quantity will be unchanged.
How does expansionary and contractionary fiscal policy affect government debt and why?
Expansionary - government deficit will rise due to lower taxes and increased government spending
Contractionary - government deficit will shrink due to higher taxes and decreased government spending.
What is not calculated in GDP?
Intermediate goods, Nonproduction transactions, Used Goods, Illegal Activities
If the price of a product went up and you wanted to know if a change in supply or demand caused it, what information would you need?
You would need to know what happened to quantity.
If a price increase was caused by an rise in demand, quantity would also rise. If a price increase was caused by a decrease in supply, quantity would fall.
List the types of markets ordered from highest to lowest market quantity.
1. Perfect Competition
2. Oligoply
3. Monopoly
Name 3 automatic stabilizers
1. Taxes
2. Unemployment Insurance
3. Medicaid
4. SNAP (Supplemental Nutrition Assistance Program)
5. Others
What are the three ways to calculate GDP?
Expenditure Approach, Income Approach, Value Added