Exam 1 Flashcards
The law of demand suggests a _____ relationship between price and ______.
Negative, Quantity demanded
Consumer surplus is the amount that consumers
are willing to pay for a good minus what they actually pay for it.
The supply curve shows the relationship between:
price and quantity supplied.
An increase in supply refers to a what kind of shift in the supply curve:
a rightward shift of the supply curve.
When the price of inputs increase, how does the supply curve respond.
the supply curve shifts up and to the left
A decrease in the opportunity cost of steel production will:
make suppliers more likely to produce steel, thus shifting the supply curve down and to the righ
An increase in demand shifts the demand curve:
to the right
If the demand for good A increases when the price of good B increases, then good A and good B are:
Substitutes
Consumer surplus on the graph
Above price line and below demand curve
Producer surplus on the graph
Below price line and above supply curve
Anonymity on the Internet has lowered the cost of rudely confronting people. What has happened to the supply of rude confrontations?
The supply has increased, shifting down and to the right
A decrease in demand shifts the demand curve
to the left
The quantity supplied:
is the amount that sellers are willing and able to sell at a particular price.
The law of supply reflects a _____ relationship between price and quantity ______
positive, supplied
An increase in a per unit production tax ______ supply.
decreases
Out of the following which does not shift demand?
- Population
- Price
- Expectations
- Income
Price
A decrease in the price of one substitute good causes the demand curve of the other good
To shift to the left
As the price of a good increases:
it becomes profitable to produce more of the good even with higher costs of production.
An increase in the future expected price of a storable good ________ supply.
Decreases
** If market demand decreases (affect on equilibrium price and equilibrium quantity) **
equilibrium price and quantity will both decrease.
** If market supply increases: (affect on equilibrium price and equilibrium quantity) **
equilibrium price will decrease but equilibrium quantity will increase.
When a market is competitive:
buyers compete with other buyers, raising prices, and sellers compete with sellers, lowering prices.
** If market demand increases (affect on equilibrium price and equilibrium quantity) **
an increase in both the equilibrium price and the equilibrium quantity
In the market for a normal good, an increase in income will cause an increase in ______, an increase in quantity ______, and a(n) ______ in price.
demand; supplied; increase
A decrease in supply causes the equilibrium price to ______ and equilibrium quantity to ______.
rise; fall
Which of the following events will cause a decrease in the equilibrium price?
- a government tax on output
- a decrease in income for an inferior good
- an increase in the price of a substitute good
- lower input prices
lower input prices
If demand decreases, ceteris paribus, market price will be ______ at the new equilibrium point.
lower
How did the spread of the Internet affect the market for news (regardless of source)?
Supply increased, causing the price to fall.
How did the spread of the Internet affect the market for newspapers?
Demand decreased, causing the price to fall.
When you move along a demand curve:
all non-price determinants of demand are held constant.
When the price of a good increases, demand for the good will:
- increase
- decrease
- unaffected
- depends on supply
-Unaffected. Remember the the quantity demanded will increase, not the demand.
The elasticity of demand measures
how much less of a good or service consumers will buy when the price increases.
To examine how responsive consumers are to price changes, economists measure
the elasticity of demand.
The fundamental determinant of the elasticity of demand for a good is
how easy it is to substitute the good for another.
If the demand for a good is inelastic, then what is the result of price increase?
The revenue will increase
The elasticity of supply measures
how quantity supplied responds to price changes.
The demand for most goods tends to become ______ over time.
more
The supply of a good tends to be more elastic if production can be
expanded without causing a big increase in the price of its inputs.
Relationship between price INCREASE, elasticity, and revenue.
Elastic: Reduces revenue
Inelastic: Increases revenue
Relationship between price DECREASE, elasticity, and revenue.
Elastic:Increases revenue
Inelastic: Reduces revenue
Supply tends to be ________ in local markets, and ________ in global markets.
elastic, inelastic
If the cross-price elasticity of demand of two goods is negative, we can conclude that the two goods are:
complements
The question of who pays the greater amount of a commodity tax is determined by:
the relative elasticities of demand and supply.
Whether a buyer or a seller pays more of a commodity tax depends on:
their relative price elasticities.
The difference between what buyers pay for a unit of a good and what sellers receive is known as the
Tax
Who bears the majority of burden in the case of a state cigarette tax?
Buyers
Commodity taxes impose a ______ upon society.
Deadweight loss
When the maximum legal price is below the market price we say that there is a price:
Ceiling
For a price floor to prevent market forces from finding the equilibrium price it must be set:
above the equilibrium price, causing a market surplus.
A price ceiling causes a
shortage
If a minimum wage is posted in the labor market:
a surplus of labor would develop.
A price floor is
a minimum price allowed by law
Price floors cause a
surplus
The most common example of a price being controlled above market levels involves a good for which the:
Seller outnumbers the buyer
The presence of price floors in a market usually is an indication that:
sellers of the good or service outnumber the buyers.
Price ceiling is
a maximum price allowed by law
What are the 5 shift factors of demand
- # of buyers
- Price of other goods
- Income
- Expectations of future prices
- Taste and preferences
Reading a supply curve horiz. and vert.
Vert: Marginal cost to produce a good
Horiz: Amount firm will supply at given price
Reading a demand curve horiz. and vert.
Horiz: How much people demand at given price
Vert: Marginal benefit of a unit
What are the 4 shift factors of supply
- Cost of production
- Number of sellers
- Expectations
- Price of other goods
What is producer surplus?
Difference between firms get and the marginal cost
Elastcity equation
% change in quantity / % change in price
Values of elasticity
E < 1 = inelastic
E > 1 = elastic
Income, good elasticity
Normal good = E > 0
Inferior good = E < 0
Substitutes and compliments elasticity
Substitutes = E > 0 Compliments = E < 0
