CH 3:Demand and supply Flashcards
What is demand?
It is the willingness and ability to buy a product
What is supply?
it is the willingness and ability to supply a product
What is the diminishing marginal utility?
As consumers buy more good and services, satisfaction obtained from each good decreases.
What are the causes that shift the demand curve?
Change in consumers taste
increase in population
income
price of substitutes
price of complementary goods
What is the network effects?
when the value of product rises because more people use it.
What is the congestion effect?
when the value of product decreases because more people use it.
What causes movement along the curve?
Change in the price of the good itself
What causes the shift in supply?
prices of resources
technology
Taxes and subsidies
price of other goods
number of sellers in market
What is equilibrium price?
a price at which demand and supply interact.
What is productive efficiency?
when a product is produced in a least costly way
What is allocative efficiency?
occurs when MB=MC and consumer surplus and product surplus is maximized.
What is price ceiling?
Maximum price set below the equilibrium price leading to shortage.
What is price floor?
Minimum price set above equilibrium leading to surplus.
