Chapter 3

Front 1

equilibrium price ( market clearing price)

Back 1

price at which the quantity demanded equals the quantity sold

Front 2

law of demand

Back 2

quantity demanded and price are inversely related- more is demanded at a lower price, less at a higher price.

Front 3

law of supply

Back 3

quantity supplied and price usually are directly related - more is supplied at a higher price, less at a lower price.

Front 4

quantity demanded

Back 4

maximun quantity of a good that buyers are willing to buy at a given price ( over a fixed period of time)

Front 5

quantity supplied

Back 5

maximun quantity of a good that sellers are willing to supply at a given price ( over a fixed period of time.

Front 6

buyers and sellers

Back 6

higher price reduces the quantity of the good that demanders want to buy

but increases the the quantity sellers want to sell

Front 7

relative price

Back 7

pertaining price of a good- its price relative to the price of other goods.

the relative price of good A tells how much of the good B must be giving up to get one more unit of good A

Front 8

why the law of demand hold

Back 8

added buyer effect - lower price

the income effect-

the substitution effect of a lower price.

Front 9

the demand price for a good

Back 9

reflects its marginal benefits to buyers. it is the highest price buyers would pay for the last (marginal) unit of the particular quantity of the good.

Front 10

demand curve

Back 10

shows the quantity demanded of a good at various prices, assuming that the nonprice determinants of demand, such as consumers income dont change.

Front 11

price and the quantity supply rule

Back 11

the quantity supplied have a direct (or positive) relationship: when one goes up, the other goes up, when one goes down the other goes down

Front 12

2 reason why a higher market price usually elicits a greater quantity supplied

Back 12

the higher price increase the profits of existing sellers, causing them to want to sell more and

the higher price attracts new suppliers

Front 13

you should remember

Back 13

supply price reflects marginal cost

Front 14

law of one price

Back 14

all units tend to trade at the same price

Front 15

market equilibrium

Back 15

occurs at the price at which the quantity supplied equals the quantity demanded.

the price does not tend to change ( as ong as the nonprice deteriminants of demand and supply remain unchanged.

Front 16

if the price is above the market equilibrium price

Back 16

a surplus will occur.

quantity supplied exceeds quantity demanded. the market price will tend to fall.

Front 17

if the price is below the equilibrium price

Back 17

a shortage will occur.

quantity demanded exceeds quantity supplied. the market price will tend to to rise.

Front 18

price-floor

Back 18

is a restriction imposed by the government that prohibits the price from falling below a certain level.

if the price below the market equilibrium price the floor has no effect.

however, if the price floor is above the market price, it causes a surplus: at least some sellers will not be able to find new buyers for all they want to sell.

Front 19

price ceiling

Back 19

is a restriction imposed by the government that prohibits a price from going above a certain level.

if price Ceiling is below equilibrium price shortage are created.

only with cealing price have a chronic shortage.

Front 20

locus of trade

Back 20

the smaller of the quantity demanded and supplied is the quantity actually bought and sold

this quantity ( the smaller of demanded and supply at each price)

Front 21

nonprice rationing

Back 21

method equating supply and demand other than price.

2 methods of price are - waiting line and discrimination.

Front 22

price ceiling set below the equilibrium price

Back 22

results in a shortage of the goods

Front 23

a price floor set above the equilibrium

Back 23

price results in a surplus

Front 24

in a competitive market

Back 24

the demand curve for a good is the goods marginal benefit schedule

demander buy another unit of good-- total benefits goes up (MB)-- while total cost goes up by the market price. (p)

change in net benefits equals the increase in total benefits minus the increase in total cost.

Front 25

marginal analysis tell us

Back 25

that as long as a good's marginal benefits exeeds its marginal costs, producing and selling that unit can make buyers and sellers better off.

Front 26

is the quantity demanded the same as the quantity bought?

Back 26

no. when the market price is below the market clearing price, the quantity bought will be less than the quantity demanded.

at the market price or above - the quantity demanded will equal the quantity bought.

Front 27

is the quantity supplied the same as the quantity sold?

Back 27

no. when the market price is above the market equilibrium price, the quantity supplied will be greater than the quantity sold.

at the market price or below the quantity supplied will equal the quantity sold.

Front 28

what is the difference between scarcity and shortage.

Back 28

scarcity if when there are not enough units of a good to satisfy all of everyones wants when the price of the good is zero.

a shortage in when there are not enough units sold at a given price to satisfy what people want to buy at that price.

Front 29

can there be a surplus of a scarce good ?

Back 29

yes; just impose a price floor above the equilibrium price.

Front 30

how can a merchant tell whether his or her price is too low ? too high?

Back 30

if the price is too low, there is excess demand for the merchant's goods.

if it is too high, there is excess supply.

Front 31

does demand change when the price change

Back 31

no. the quantity demanded changes when the price changes.

Front 32

when there is a shortage how will the price change? what will happen to the quantity demanded and supplied?

Back 32

the price will rise:

the quantity demanded will decrease,

while the quantity supply will increase.

Front 33

why does an individual usually buy more of a good when its price falls?

give two reason

Back 33

income effect and the substitution effect.

Front 34

how do you find in a demand and supply diagram the quantity that will be bought and sold at each price.

Back 34

pick a price and go directly right until you reach the first curve

this will be the amount bought and sold at this price.

Front 35

how will some demanders be hurt by a price ceiling?

Back 35

less would be sold. some may not get any.

Front 36

supply and demand

Back 36

at a higher price reduces the quantity of the goods demanders want to buy, but increases the quantity sellers want to sell.