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27 Cards in this Set
- Front
- Back
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market
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the market for any good consists of all buyers or sellers of that good
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demand curve
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a schedule or graph showing the quantity of a good that buyers wish to buy at each price
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substitution effect
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the change in the quantity demanded of a good that results because buyers switch to or from substitutes when the price of the good changes
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income effect
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the change in the quantity demanded of a good that results because a change in the price of a good changes the buyer's purchasing power
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buyer's reservation price
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the largest dollar amount the buyer would be willing to pay for a good
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supply curve
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a graph or schedule showing the quantity of a good that sellers wish to sell at each price
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seller's reservation price
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the smallest dollar amount for which a seller would be willing to sell an additional unit, generally equal to marginal cost
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equilibrium
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a system is in equilibrium when there is no tendency for it to change
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equilibrium price and equilibrium quantity
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the values of prices and quantity for which quantity supplied and quantity demanded are equal
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market equilibrium
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occurs in a market when all buyers and sellers are satisfied wtih their respective quantities at teh market price
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excess supply
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the amount by which quantity supplied exceeds quantity demanded when the price of a good exceeds the equilibrium price
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excess demand
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the amount by which quantity demanded exceeds quantity supplied when the price of a good lies below the equilibrium price
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price ceiling
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a maximum allowable price, specified by law
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change in the quantity demanded
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a movement along the demand curve that occurs in response to a change in price
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change in demand
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a shift of the entire demand curve
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change in supply
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a shift of the entire supply curve
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change in the quantity supplied
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a movement along the supply curve that occurs in response to a change in price
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complements
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two goods are complements in consumption if an increase in the price of one causes a leftward shift in the demand curve for the other (or if a decrease causes a rightward shift)
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substitutes
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two goods are substitutes in consumption if an increase in the price of one causes a rightward shift in the demand curve for the other (or if a decrease causes a leftward shift)
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normal good
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one whose demand curve shifts rightward when the incomes of buyers increase and leftward when the incomes of buyers decrease
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inferior good
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one whose demand curve shifts leftward when the incomes of buyers increase and rightward when the incomes of buyers decrease
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buyer's surplus
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the difference between the buyer's reservation price and the price he or she actually pays
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seller's surplus
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the difference between the price received by the seller and his or her reservation price
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total surplus
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the difference between the buyer's reservation price and the seller's reservation price
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cash on the table
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economic metaphor for unexploited gains from exchange
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socially optimal quality
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the quantity of a good that results in the maximum possible economic surplus from producing and consuming the good
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efficiency (also caled economic efficiency)
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occurs when all goods and services are produced and consumed at their respective socially optimal levels
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