Unit 3 Supply and Demand Flashcards
(33 cards)
Do people buy more at lower prices?
yes
Do sellers want to sell more at higher prices?
yes
Why is it good to care about supply and demand?
- understand what is being consumed, how much, and how that might change
- helps to understand, depict, and quantify what is wrong with the system
Why does the demand curve normally slope downward?
As the price of a good decreases, the demand for that good increases
People consume more when it’s cheaper
Decreasing marginal utility: as you get more of the good, you value the next (marginal) unit less
How does change in quantity demand differ from change in demand?
change in quantity demand refers to the change in the quantity of units purchased due to an increase or decrease in price
change in demand refers to increase or decrease in demand of a product due to various determinants of demand while keeping the price constant
on the graph, this is represented in a shift of the line or the change in slope
Identify 3 situations where the demand curve might shift.
- number of buyers
- preferences/taste of the consumer
- incomes
- price of other goods
- consumer expectations (price and income)
Why does the supply normally curve slope up?
reflects the higher price required of the product needed to cover increased marginal cost of production
Identify 3 situations where the demand curve might shift.
- Technology
- Number of sellers
- Input (resource) price
- Taxes and subsidies
- Expectations of costs
What is market equilibrium? what causes equilibrium?
Where market supply meets market demand.
equilibrium is caused by buyers and sellers bargaining with each other until everyone is happy. (no excess of supply or demand)
Is the demand curve = Marginal willingness to pay = Marginal benefit curve?
yes
True/False
WTP is the best measure of value.
False.
It doesn’t consider income, challenges of monetization, inherent uncertainty, and consumer preferences.
What is elasticity of demand and how is it calculated?
it is the change in quantity demanded resulting form a price change.
it is calculated as the
% change in quantity demanded / % change in price
Why is the demand for gasoline considered to be inelastic?
as the price changes, there is little change in quantity demanded as many people require gas to travel
Why is the demand curve also called a willingness to pay curve?
because its a measure of how much the consumer is willing to give up to obtain a good
Why is the supply curve also called the marginal cost curve?
because marginal cost is the additional cost to produce one more unit.
What is consumer surplus?
the benefits of the product outweigh the cost of the product (would pay more for the same product)
What is producer surplus?
the total amount that a producer benefits from producing and selling a quantity of a good at the market price.
What is a negative externality? what is an environmental externality?
when a transaction between a buyer and seller negatively affect a third party
when a transaction affects the environment
How does the presence of externality impact “efficiency”?
positive and negative externalities both decrease market efficiency through profit reduction or decreased goods production, respectively.
What is the Pigouvian tax and how is it suppose to work?
a per unit tax set equal to the external damage caused by an activity
it is set to make the private cost of a good equal to the social cos by increasing tax on it
eg. carbon tax
define coase theorem.
if property rights are well defined and there are no transactions costs, an efficient allocation of resources will result even if externalities exist
what are some limits to coase theorem?
equity, strategic behaviour, lacking info, and transaction costs
what is considered common property?
a resource that is available to everyone, but use of the resource may diminish the quantity or quality available to others.
eg. groundwater
What are some examples of public goods?
clean air, highway system, national parks
