Ch 3 Supply and Demand Flashcards
Seller’s surplus
The difference between the price received by the seller and his or her reservation price
Economic efficiency
A condition that occurs when all goods and services are produced and consumed at their respective socially optimal levels
Equilibrium
A balanced or unchanging situation in which all forces at work within a system are canceled by others
Excess supply
The amount by which quantity supplied exceeds quantity demanded when the price of the good exceeds the equilibrium price
Excess demand
The amount by which quantity demanded exceeds quantity supplied when the price of a good lies below the equilibrium price
Price ceiling
A maximum allowable price, specified by law
Supply curve
A graph or schedule showing the quantity of a good that sellers wish to sell at each price
Market
The market for any good consists of all buyers or sellers of that good
Demand curve
A schedule or graph showing the quantity of a good that buyers wish to buy at each price
Change in the quantity supplied
A movement along the supply curve that occurs in response to a change in price
Income effect
The change in the quantity demanded of a good that results because a change in the price of a good changes the buyer’s purchasing power
Change in the quantity demanded
A movement along the demand curve that occurs in response to a change in price
Buyer’s surplus
The difference between the buyer’s reservation price and the price he or she actually pays
Total surplus
The difference between the buyer’s reservation price and the seller’s reservation price
Buyer’s reservation price
Th largest dollar amount the buyer would be willing to pay for a good
Change in demand
A shift of the entire demand curve
Normal good
A good whose demand curve shifts rightward when the incomes of buyers increase and leftward when the incomes of buyers decrease
Change in supply
A shift of the entire supply curve
Complements
Two goods are complements in consumption if an increase in the price of one causes a leftward shift in the demand curve for the other (or if a decrease causes a rightward shift)
Inferior good
A good whose demand curve shifts leftward when the incomes of buyers increase and rightward when the incomes of buyers decrease
Seller’s reservation price
The smallest dollar amount for which a seller would be willing to sell an additional unit, generally equal to marginal cost
Substitution effect
The change in the quantity demanded of a good that results because buyers switch to or from substitutes when the price of the good changes
Market equilibrium
Occurs in a market when all buyers and sellers are satisfied with their respective quantities at the market price
Equilibrium quantity
The values of price and quantity for which quantity suppled and quantity demanded are equal
Substitutes
Two goods are substitutes in consumption if an increase in the price of one causes a rightward shift in the demand curve for the other (or if a decrease causes a leftward shift)
Equilibrium price
The values of price and quantity for which quantity supplied and quantity demanded are equal
Efficiency
A condition that occurs when all goods and services are produced and consumed at their respective socially optimal levels
Cash on the table
Economic metaphor for unexploited gains from exchange
Socially optimal quantity
The quantity of a good that results in the maximum possible economic surplus from producing and consuming the good
