Micro Book 2 Flashcards
Demand, Supply, Market Equilibria, Consumer/Producer Surplus and Elasticity
What is demand
The quantity of a good or service that people are willing to buy at a given price
What is the law of demand
As price rises, fewer people are willing/able to buy the good (and vice versa)
What is diminishing marginal utility
The first unit of a good will typically provide the most utility to the consumer and will decline with each unit
What is a contraction of demand
An increase in price resulting in the quantity demanded to be lowered
What is an extension of demand
A reduction in price resulting in the quantity demanded to be higher
What is supply
The quantity of a good or service that sellers are prepared to sell at a given price
What is the law of supply
As price rises, sellers have a greater incentive to sell
Why would seller have a higher incentive to sell as price rises
As they make a higher return by selling more
What is the market equilibrium
The point at which the supply and demand curves cross so no excess supply (waste) or excess demand (shortage)
What are the 4 factors affecting demand
Income
Price of other goods
Tastes and Preferences
Expectations of the future
How is demand effected by income for inferior goods
As income rises, the demand for inferior goods decrease
How does changes in income effect demand for normal/luxury goods
As income rises, the demand for normal goods increase
What are the relations different goods can have with each other
Substitutes/Competitive
Complementary/Joint
Derived demand/supply
Composite demand/supply
When is a good composite
When a good has two or more uses
Consumer Surplus
Welfare gained by a consumer that paid less for a good than expected
