Chapter 2 Flashcards
Demand Shifters and discuss
- income
- prices of related goods
- advertising and consumer tastes
- population
- consumer expectations
- other factors
Normal Good
a good whose demand increases (shifts to the right) when consumer income rises is called a normal good
Inferior Good
an increase in income reduces the demand for the good
Demand Function
a function that describes how much of a good will be purchased at alternative prices of that good and related goods, alternative income levels and alternative values of other variables affecting demand.
Consumer Surplus
the value consumers get from a good but do not have to pay for
Supply Shifters and discuss
- input prices
- technology or government regulations
- number of firms
- substitutes in production
- taxes
- producer expectations
Producer Surplus
the amount producers receive in excess of the amount necessary to induce them to produce a good
Price Ceiling
the maximum legal price that can be charged in a market
Supply function
a function that describes how much of a good will be produced at alternative prices of that good,alternative input prices, and alternative values of other variables affecting supply
change in quantity supplied
changes in the price of a good lead to a change in the quantity supplied of that good. This corresponds to a movement along a given supply curve.
Change in Supply
Changes in variables other than the price of a good,such as input prices or technological advances, lead to a change in supply. This corresponds to a shift of the entire supply curve.
Change in quantity demanded
changes in the price of a good lead to a change in the quantity demanded of that good. This corresponds to a movement along the demand curve.
Change in Demand
Changes in variables other than price of a good, such as income or the price of another good, lead to a change in demand. This corresponds to a shift of the entire demand curve.
Elasticity Formula
(ΔQ x Σ(P))/(Σ(Q)x Δ(P))
Point Elasticity Formula
(ΔQ x P)/(ΔP x Q)
What if the equilibrium price is above the price floor
the price floor has no effect
If a price ceiling is imposed above the equilibrium price
it is ineffective
When a surplus exist there is natural tendency for the price to
fall
When a shortage exists
there is a natural tendency for the price to rise
How are price and consumer surplus related?
inverse relationship
Two points on price floor
…..
Two points on price ceiling
…..
what does the “inferior” in inferior goods not mean
…..
Discuss substitutes and complements
…….
What happens if you receive a negative supply number?
-supply is zero
Where is the consumer surplus located?
-above the price paid for the good but below the demand curve
Where is producer surplus located?
- above the supply curve
- but below the market price of the good
How does a free market alleviate price floors?
-the price falls to alleviate excesses….but if not the consumers pay higher prices and purchase less goods
the other way to talk about increasing Q
expressed differently when marginal benefits exceed marginal costs, the net benefits of increasing the use of Q are positive, by using more Q, net benefits increase.
Do the demand and supply chart?
……..
