Week 2 Flashcards
Define a demand curve
A demand curve is a function that shows the quantity demanded at different prices.
Define the quantity demanded
The quantity demanded is the quantity that buyers are willing and able to buy at a particular price.
Define Consumer surplus
Consumer surplus is the consumer’s gain from the exchange or the difference between the maximum price a customer is willing to pay for a certain quantity and its market price.
Define the total consumer surplus
The total consumer surplus is measured by the area beneath the demand curve and above the price
An ______ in demand shifts the demand curve outward, up and to the right. A ______ in demand shifts the demand curve inward, down and to the left.
increase; decrease
Name important demand shifters
- Income
- Population
- Price of substitutes
- Price of complements
- Expectations
- Tastes
Define the supply curve
The supply curve is a function that shows the quantity supplied at different prices.
Define the ‘law of supply’
The higher the price, the greater the quantity supplied.
Define the ‘law of demand’
The lower the price, the greater the quantity demanded
Explain ‘producer surplus’
Producer surplus is the producer’s gain from the exchange or the difference between the market price at which a producer would be willing to sell a particular quantity.
What shifts the supply curve?
Economists say that a decrease in costs increase supply. Higher costs mean that the supply curve shifts in the opposite direction.
Name some important supply shifters
- Technological innovations and changes in price inputs
- Taxes and subsidies
- Expectations
- Entry or exit of producers
- Changes in opportunity costs
The price at the meeting point (supply and demand), is called the…
… equilibrium price.
The quantity at the meeting point is called the…
… equilibrium quantity
What’s the “Invisible hand”, according to Adam Smith
Economic forces in a free market will always push and pull prices towards their equilibrium values.
