Topic 3 - Benefits and Costs, Supply and Demand Flashcards
Willingness to Pay
The value that a person places on a good or service and is willing to pay to get that good or service.
Will to pay also reflects ones ability to pay, as it varies across different socioeconomic levels and geographic regions.
Total WTP
Total amount that a person is willing to pay for a good to attain a certain consumption level, rather than going without the good entirely.
Measured as the area under the demand curve.
Marginal WTP
A person’s additional willingness to pay for one more unit of a good.
Shown as the height of a demand curve.
Individual’s Demand/Marginal WTP Curve
The quantity of a good or service that the individual is willing and able to purchase at a given price during a specific period of time, other things being constant.
Law of Demand
States that holding everything else constant, when price of a good decreases, the demand for that good increases, and vise versa.
Aggregate Demand
Summation of all individual demand curves in a market of a good, typically grouped by a geographic region.
Benefit
A benefit is what you gain from something, or, how much something makes you better off.
A benefit one gets from a good is measured by their will to pay for that good.
Marginal Benefit
The additional utility, benefit, or satisfaction received from consuming one additional unit of a good or service. Measured by one’s marginal will to pay.
Marginal benefit is highly dependant on marginal utility, when the utility is high, people will pay more.
Total Benefits
The total amount of utility, benefit, or satisfaction gained by consuming several units of a good or service at that consumption level. Measured by one’s total will to pay.
Opportunity Costs
All costs that are used in production of a service, including out-of pocket and other costs that should be considered except for cash.
Marginal Cost
The amount of cost required to produce one additional unit of a good; how much total costs increase when one more unit of a good is produced.
Measured by the height of the supply/MC curve.
Total Cost
The costs of producing the total amount of output at a certain level.
Measured by the area under the supply/MC curve.
Supply/Marginal Cost Curve
Quantity of a good a firm is willing and able to supply at different price points, holding everything else constant.
Law of Supply
States that, holding everything else constant, quantity of a good supplied increases when price of that good increases.
What factors are able to influence market supply?
Input prices, technology, prices of related goods, number of firms in the market, expectations, and the state of nature.
Aggregate Supply
The summation of all supply curves of a good from different producers/firms in the group.
What does the “technology of the production means” refer to and what effect does it have on production?
It refers to the productive capabilities of methods and machinery used in production of a good.
Technological advancements & progress can shift the supply/marginal cost curve downwards.
