Week 2- Demand, Supply, and Market Equilibrium notes

Question 1

Market

Answer 1

A big bubble where buyers and sellers communicate. Buyers and sellers provide competition.

Question 2

Demand-

Answer 2

Curve that shows amount of goods that people are WILLING and ABLE to purchase.

Question 3

Law of Demand-

Answer 3

price falls, quantity demanded rises. Inverse relationship.

Question 4

Marginal-

Utility-

Answer 4

Marginal- change

Utility- happiness.

Question 5

Law of Diminishing Marginal Utility-

Answer 5

Consuming the same unit makes you less happy and satisfy.

Question 6

Income effect-

Answer 6

If Purchasing Power increases, Price decreases.

Question 7

Substitution effect-

Answer 7

As price increases, consumer seeks lower cost alternatives.

As income increases, consumer seeks for high quality goods and more expensive stuff.

Question 8

Determinants of demand-

Answer 8

1. Consumer taste.
2. Amount of buyers in market.
3. Consumer income (normal or inferior).
4. Price related goods (substitute and complementary goods).
5. Consumer expectations.

Question 9

How to find Market demand-

Answer 9

By adding quantity demanded from all consumers at certain price to get market demand.

Question 10

Change in demand?

Answer 10

Shift right= increase. Shift left= decrease in demand.

Question 11

Normal goods-

Answer 11

Varies directly w/ incomes.

Question 12

Inferior goods-

Answer 12

Varies inversely.

Question 13

Substitute goods-

Answer 13

Replace other goods. Ex: Price of pepsi increase, you not going to buy pepsi anymore. Therefore, your demand for Coke increase.

Question 14

Complement goods-

Answer 14

If price of a good goes up, price of related goods decrease.
Ex: Hotdog price increase, less people will buy hotdog buns.

Question 15

Unrelated goods (independent)-

Answer 15

Goods not related to one another.

Question 16

Consumer expectations-

Answer 16

If they expect price of goods increase in future, they will buy more today (more demand).

Question 17

Change in Quantity demanded-

Answer 17

Movement along the line (up and down), not shift right or left.

Question 18

Supply-

Answer 18

Goods that producers are WILLING and ABLE to purchase.

Question 19

Law of Supply-

Answer 19

Direct relationship btwn Price and Quantity supplied. .

Question 20

Market supply-

Answer 20

Find the sum of each individual suppliers at certain price, then add up together to find market supply.

Question 21

Determinants of supply:

Answer 21

1. Resources prices- high production price, supply decreases.
2. Technology- increase in technology which lowers production cost= supply decreases.
3. Taxes and subsidies- tax increase= supply decrease.
4. Price of other goods- price of other goods increase, supply of original good decreases.
5. Producer expectations- Farmers will hold supply and release in future if price increase. Factory will increase labor supply to meet future increase in price.
6. Number of sellers- more sellers= more supplies.

Question 22

Market equilibrium-

Answer 22

Competitive market w/ multiple sellers and buyers act independently, none of them can set price.

Question 23

Equilibrium price-

Answer 23

Price where buyers and sellers match. Equilibrium aka Market Clearing Price.

Question 24

Equilibrium quantity-

Answer 24

Quantity demanded = quantity supplied.

Question 25

Rationing function of prices-

Answer 25

Ability for competition to force supply and demand into an equilibrium.

Question 26

Productive efficiency-

Answer 26

Minimizes cost.

Question 27

Allocative efficiency-

Answer 27

Mix of goods most valued by society. MB=MC

Question 28

Price ceiling-

Answer 28

Set maximum legal price that seller may charge for services by gov’t. Causing shortage and Black Market.

Question 29

Rent Control-

Answer 29

Gov’t set price ceiling, causing shortage on renting places.

Question 30

Price Floor-

Answer 30

Minimum price fit by gov’t. Causing surplus due to the fact that there’s more supplies than demands.
Gov’t can help by: restrict supply or purchase those surpluses.

Question 31

Price floor and Price ceiling causes-

Answer 31

Failures to allocate efficiency.

Question 32

How to calculate Consumer surplus-

Answer 32

Willing to pay - amount actually pay.

Question 33

Producer surplus-

Answer 33

Amount that seller is paid for a good - cost of production.

Question 34

Social surplus (Total Surplus)-

Answer 34

Sum of Consumer surplus and producer surplus.

Question 35

Deadweight loss-

Answer 35

Loss in total surplus that occurs when economy produces at an insufficient quantity.

Question 36

Alfred Marshall-

Answer 36

A famous economist.