S1 - Market forces

Question 1

what are 2 types of changes in quantity demanded

Answer 1

changing only price leads to changes in quantity demanded
Movement along a given demand curve - other factors remain constant
changing factors other than price leads to changes in demand
Shift of the entire demand curve

Question 2

what are the demand shifters

Answer 2

income - normal v inferior
Prices of related goods - substitute or complement
Advertising and consumer tastes - informative and persuasive
Population
Consumer expectations

Question 3

what is the linear demand function

Answer 3

Q = f(Px, Py, M, H)
Price of good x, price of related good y, income, other variable affecting demand
Qxd = a0 + axPx + ayPy + amM

Question 4

how do you know if a good is a substitute/inferior from the demand function

Answer 4

Ax < 0 by law of demand
Ay > 0 if a substitute
Ay < 0 if a complement
Am > 0 if normal
Am < 0 if inferior

Question 5

what is the inverse demand/supply function

Answer 5

solving linear demand function for price in terms of Q

Question 6

what is consumer surplus

Answer 6

total consumer value = sum of maximum amount a consumer is willing to pay at different quantities
Total expenditure = per unit market price x units consumed
Consumer surplus = extra value that consumers derive form a good but do not pay for = consumer value - expenditure

Question 7

what are the 2 types of changes in quantity supplied

Answer 7

changing only price leads to changes in quantity supplied
Movement along a given supply curve - other factors remain constant
changing factors other than prove lead to changes in supply
Shift of the entire supply curve

Question 8

what are the supply shifters

Answer 8

input prices
Technology
Government regulation
Number of firms
Substitutes in production
Taxes

Question 9

what is the linear supply function

Answer 9

Qxs = B0 + BxPx + BwW + BrPr + BhH
Price, input price, price of technologically related goods, other variable
Inverse supply function solves for price to construct a market supply curve

Question 10

what is producer surplus

Answer 10

amount producers receive in excess of the amount necessary to induce them to produce the good

Question 11

what is market equilibrium

Answer 11

balancing price and quantity so that there is no shortage or surplus in the market
Demand = supply
Comparative static analysis = study of movement from one equilibrium to another