Midterm 1 (Supply and Demand) Flashcards
3 reasons for law of demand
- Income effect
- Diminishing marginal utility
- Substitution effect
Production possibilities
(“Here’s the best I can do with what I have right now”)
Production possibilities
All the various combinations of goods and services that can be produced with a given quantity of resources, a given quality of resources, and a given technology assuming we are being as efficient as possible.
Absolute advantage
Who can produce the most
Comparative advantage
Who can produce the most at the lowest cost
Voluntary exchange
BOTH sides must be better off
Law of Demand
As the price of a product goes up, the quantity that consumers are willing and able to buy goes down
True or False: Price affects demand
FALSE. Price affects QUANTITY DEMANDED (P and Q)
QUANTITY supplied/demanded does what with curve?
moves along
SUPPLY/DEMAND does what with curve?
shifts vertically
Demand shifters
-Income (normal vs inferior goods)
-prices of related goods
-tastes and preferences
-consumer expectations
-number of consumers
rising cost (not constant) causes an ___________ sloping graph
outward
Law of Supply
All else equal, as the price of a product rises, the quantity of that product that producers are willing and able to sell will also rise.
Able
increasing costs due to decreasing productivity
Willing
profit motive
