exam 1 chapter 3: Flashcards
What is a demand curve?
A function that shows the quantity demanded at different prices.
What is Quantity demanded?
The quantity that buyers are willing and able to buy at a particular price.
What explains how prices are determined?
Supply and demand, as they are able to generate the equilibrium for the market.
How to read a demand curve horizontally vs. Vertically?
horizontal: At a given price how many people are willing to buy.
vertical: What are people willing to pay at a given price.
Sellers –>?
Supply.
Buyers –>?
Demand.
What is the law of demand?
- Consumers will buy more of a given product at a lower price.
- When the price is high, consumers will use it only in its most valuable uses. ( to fill their car for a necessary trip)
- When the price for a good is low, individuals will use the good in its less valued form.
What is the wealth effect?
when prices are too high for an item you have to buy less.
What is the substitution effect?
When prices for an item get too high, you have to find somewhere else to go.
What is equilibrium in a supply and demand curve example?
this is the price where the quantity supplied is equal to the quantity demanded.
What is the independent variable in a supply and demand graph?
Price, and it is on the Y-axis.
What is a normal good?
With an increase in salary, you buy more goods.
home renovations.
What is an inferior good?
You buy less of a product as your income increases.
ramen
What is a consumer surplus?
This is the consumer’s gain from an exchange; it is the difference between the maximum price a consumer is willing to pay and what they actually payed for the good.
What is a total consumer suplus?
The area beneath the demand curve, but above the supply curve. this is typically the far left area on the graph.
(this would be a situation in which not many people were in the market and the price was very favorable.)
How do you calculate the total consumer surplus, given that the demand curve is at $30 and you only ended up paying 10$ (which would equate to a demand of 70)
2
How does an increase in the demand for a product effect the demand curve?
- It pushes the demand curve further to the right.
- At each price people are willing to buy more
- At each quantity people are willing to pay more.
How does an increase in demand effect quantity and price?
At higher prices or as you move vertically on a supply/demand curve, It indicates that the buyer is willing to pay an increased price for the same quantity of good.
As you move lower and to the right: it indicates that you would be willing to buy more at the same price.
How is a decrease in the demand curve represented?
The demand curve shifts to the left.
- At each price, people are willing to buy less.
- At each quantity people are willing to pay a lower price.
Which of the following if increased may push the demand curve to the left:
- ) income
- ) population
- ) price of substitutes
- ) price of complements
- ) expectations
- ) Tastes
- ) income, if it is an inferior good.
- ) a decrease in the price for a substitute will decrease the demand for the product at hand.
- ) An increase in the price for the product at hand and a decrease in its complement will shift that product to the left and increase the demand for it’s complement
- ) The expectation of an increase in a future supply will drive the demand curve to the left.
- ) Tastes driven by fads or advertising can shift the curve an number of ways.
What is a supply curve?
A function that shows the quantity supplied at differing prices.
Quantity Supplied?
The quantity that sellers are willing and able to sell at a particular price.
What is the law of supply?
- As the price increases it becomes more profitable to extract the product from more costly sources.
- As the price rises, the quantity supplied increases.
What is a producer surplus?
The producers gain or the difference between the market price and the minimum price at which a producer would be willing to sell a particular quantity.
- Lets say the producer is willing to sell his product for 4$, but ends up selling it for 10$.
What is a total producer surplus?
The area above the supply curve and below the price.
What is the effect of the supply curve shifting to the right?
- At each price, producers are willing to sell more.
- At each quantity, producers are willing to sell for lesss.
What are the effects of the supply curve shifting to the left?
- At each price the seller will offer less.
- At each quantity the seller is charging a higher amount.
What factors shift the supply curve?
- ) Technological innovations and changes in the price of inputs.
- ) Taxes and subsides.
- ) expectations
- ) Entry or exit of producers
- ) Changes in opportunity costs.
How does an increase in opportunity costs affect the supply curve?
It drives the supply curve up and to the left.
If the supply and demand curve move in opposite directions, what do u know?
You know it either creates a surplus or a shortage. Surplus/Shortage.
If the supply and demand curve moves in the same direction, what do u know?
you know quantity.
