Review of Competitive Markets: Demand and Supply Flashcards
What is the Law of Demand?
When the price of a good increases, QUANTITY DEMAND will decrease and when the price of a good decreases, the QUANTITY DEMAND will increase.
What shifts the demand curve?
Non-Price Determinants
-competition
-predicting the market
-price of a substitute good
-expected price
-consumer income
-habit
What is the vertical interpretation of the demand curve?
The [quantity] (x-axis) is valued at the [price] (y-axis).
States quantity, and then price
What is the horizontial interpretation of the demand curve?
The price is [price] (y-axis) when consumers are willing to buy [quantity] (x-axis).
States price, and then quantity
What is marginal benefit (MB)?
D, the demand curve
What is marginal cost (MC)?
S, the supply curve
What is allocative efficiency?
When marginal cost equals marginal benefit.
What is the condition that results in allocative efficiency?
Producing the right amount of goods and serves to maximize welfare.
What is the consumer surplus?
The max willingness of consumers to pay; when MB > MC. (marg ben. > marg. cost)
What is the producer surplus?
The max willingness for producers to sell; when MC > MB. (marg cost > marg. ben.)
For markets to be efficient, what should be true about the demand and supply curves?
They should have an opposite slope.
When do markets fail?
When there is inefficiency caused by…
-value of good does not reflect the price
-QS is not equal to QD
