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27 Cards in this Set
- Front
- Back
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Demand
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The negative relationship between the price of a good and the quantity demanded.
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Quantity demanded
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the amount that a person purchases at a particular price
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Law of Demand
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As price falls, quantity demanded will increase; there is a negative relationship between price and quantity demanded.
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What are the constants when working with a Production Possibilities Frontier (PPF)?
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1) Technology
2) Resources (land, labor, captial, and risk) |
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What is an example of a consumer good?
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Butter
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What is an example of a capital good?
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Guns
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What is a captial good?
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A good that is used to produce other goods, either other captial good or consumer goods, aka tools or machines.
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Given an economy produces N goods, it may have a comparative advantage of ______ .
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N - 1
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A _______ relationship exists between changes in the price of a substitute and the ______ for the good in question.
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positive; demand
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A ______ relationship exists between changes in the price of a compliment and the _______ for the good in question.
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negative; demand
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What are the four things held constant when measuring demand?
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1)prices of other closely related goods.
2) tastes and preferences. 3) income 4) population |
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If the good is normal, an increase in income will ______ the demand for the good.
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increase
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Law of Supply
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As price rises, quantity supplied increases.
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Define equlibirium.
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the point where there is no inherent tendency to change; where quantity demanded equals quantity supplied.
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What are price floors?
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Prices above equilibrium
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Does an increase in price affect supply or quantity supplied?
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quantity supplied.
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Increase in demanded leads to a ___ in the price of a complement, _____ in tastes and preferences, _____ in prices of substitutes for an inferior good.
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decrease; increase; increase
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A decrease in income leads to a(n) ____ in demand.
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increase
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Increase in price of input leads to a _____ in supply.
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decrease because the cost of making the product has gone up.
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Define consumer surplus.
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the dollar benefit consumers recieve from buying good ans services at prices less than the maximum prices they would be willing to pay.
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Define producer surplus.
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the dollar benefit producers recieve from selling goods and services at prices greater than the minimum prices they would be willing to accept.
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What is economic surplus?
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The sum of consumer surplus and producer surplus.
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What is a floor price?
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A legal price greater than the equilibrium price.
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What is a ceiling price?
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A legal price lower than the equilibrium.
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Define tax incidence.
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the degree to which consumers or producers actually pay a tax.
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What does a tax do to the supply curve?
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Shift the curve for the good up by the amount of the tax
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How is tax incidence determined?
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By the degree to which the market price rises as a result of a tax.
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