chapter 3 Flashcards
Demand curve is _____ sloping?
downward sloping
Demand curve tells what?
How much of a items people are willing to buy at different prices
What is income effect?
The change in the quantity demanded of a good that results due to a change in the price of a good which changes the buyer’s purchasing power
Buyer’s reservation price is what?
The largest dollar amount the buyer would be willing to pay for a good.
The supply curve is what sloping?
upward sloping; Thus quantity and Price are directly related
The supply curve tells you what?
The number of a product a market is willing to sell at each price
Seller’s reservation price?
The smallest dollar amount for which a seller would be willing to sell an additional unit
Seller’s reservation price is generally equal to what?
marginal cost
What does it mean by being satisfied?
Occurs when market is in equilibrium; when the sellers can sell everything they want to sell at a certain price and buyers are able to buy exactly as many units of goods as they wish to at equilibrium price.
Price ceiling is what?
Unlawful to charge more than the price ceiling
quantity demand occurs from what?
price change
What are common causes of shifts in demand curve?
- Price in complements
- Price in substitutes
- Change in income such as through federal pay raise
What are common causes of supply cost?
- changes in cost of resources (inputs) needed to make product/service
- Change in marginal cost (reduction will cause right shift in marginal cost)
- Technical changes
What reduces marginal cost?
decline in wage rate such as with carpenters reduces making new houses and this means for any given price, more builders can profitably serve the market than before.
An increase in demand will lead to an increase in what?
Increase in BOTH equilibrium and quantity
A decrease in demand will lead to what?
Decrease in BOTH equilibrium and quantity
An increase in supply will lead to what?
DECREASE in Equilibrium but INCREASE in Quantity
A decrease in supply will lead to what?
INCREASE in Equilibrium but DECREASE in quantity
An increase in population of potential buyers will do what to to the demand curve?
Increase or shift it to the right/upward direction.
An increase in expected rise in prices in the near future will do what to demand now?
Increase or shift demand curve to the right/upward direction.
An increased preference be demanders for a good or service will do what to the demand curve?
increase it or shift it to right or upward
An increase in income for a normal good will do what to deamnd curve
shift it to the right
An improvement in weather does what for the supply curve?
Increases supply cure or shifts in rightward or downwards.
An expectation of lower prices in the future will do what to the supply curve?
Shift supply curve to the right or downward
An increase in suppliers will do what?
Shift demand curve to the right and downward
Buyer’s surplus
Difference between reservation price and price actually pays
Sellers surplus?
Difference between the price she recieves and her reservation price
Total surplus?
Sum of buyers surplus and sellers surplus
cash on the table?
Metaphor for unexploited opportunities; when people failed to take advantage of all mutually beneficial exchanges
When is there cash on the table?
-When price in market is below equilibrium because reservation price of sellers (marginal cost) will always be lower than reservation price of buyer.
Social optimal quantity of any good
is the quantity that maximizes the total economic surplus that results from producing and consuming the good.
Social optimal quantity is when what?
Marginal cost and marginal benefit are the same.
Failure to achieve efficency means what?
total economic surplus is smaller than it could have been
When is there no cash on the table?
At equilibrium; when there is no unexploited opportunities for individuals
