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27 Cards in this Set

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