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36 Cards in this Set

  • Front
  • Back
market
consists of all buyers or sellers of a good
demand curve
a schedule or graph showing the quantity of a good that buyers wish to buy at each price
substitution effect
the change in the qunatity demanded of a good that buyers wish to buy at each price
income effect
the change in the quantity demanded of a good that results because a change in the price of a good changes the buyers purchasing power
buyers reservation price
the largest dollar amount the buyer would be willing to pay for a good
supply curve
a curve or schedule showing the quantity of a good that sellers wish to sell at each price
sellers reservation price
the smallest dollar amount for which a seller would be willing to sell an additional unit, generally equal to marginal cost
equilibrium
a system is in equilibrium when there is no tendency for it to change
equilibrium price and equilibrium quantity
the values of price and quantity for which quantity supplied and quantity demanded are equal
market equilibrium
occurs in a market when all buyers and sellers are satisfied with their respective quantities at the market place
excess supply
the amount by which quantity supplied exceeds quantity demanded when the price of a good exceeds the equilibrium price
excess demand
the amount by which quantity demanded exceeds quantity supplied when the price of a good lies below the equilibrium price
price ceiling
a maximum allowable price, specified by law
change in quantity demanded
a movement along the damand curve that occurs in response to a change in price
change in demand
a shift of the entire demand curve
change in supply
a shift of the entire supply curve
change in the quantity supplied
a movement along the supply curve that occurs in response to a change price
complements
occurs when an increase in the price of one good causes a leftward shift in the demand curve for the other (or if a decrease causes a rightward shift)
substitutes
occurs when in consumption an increase in the price of one good causes a rightward shift in the demand curve for the other (or if a decrease causes a leftward shift)
normal good
one whose demand curve shifts rightward when the incomes of buyers increase and leftward when the incomes of buyers decrease
inferior good
one whose demand curve shifts leftward when the incomes of buyers increase and rightward when the incomes of buyers decrease
buyers surplus
the difference between the buyers reservation price and the price he or she actually pays
sellers surplus
the difference between the price received by the seller and his/her reservation price
total surplus
the difference between the buyers reservation price and the sellers reservation price
cash on the table
economic metaphor for unexploited gains from exchange
socially optimal quantity
the quantity of a good that results in the maximum possible economic surplus from producing and consuming the good
efficiency (economic efficiency)
occurs when all goods and services are produced and consumed at their respective socially optimal levels
Sellers generally offer more units for sale at higher/lower prices?
higher prices
Factors that cause an increase (rightward or upward shift) in demand:
1)decrease in price of complements
2)increase in price of substitutes
3)increase in income
4)increased preferance by demanders
5)increase in population of potential buyers
6)expactation of higher prices in future
Factors that cause an increase (rightward or downward shift) in supply:
1)decrease in cost of materials, labor, or other inputs used in production
2)improvement of technology that reduces cost of production
3)improvement in the weather
4)increase in number of suppliers
5)expectation of lower prices in the future
An increase in demand will lead to a(n) __________ in both the equilibrium price and quantity.
increase
A decrease in demand will lead to a(n) __________ in both the equilibrium price and quantity.
decrease
An increase in supply will lead to a(n) __________ in the equilibrium price and
a(n) __________ in the equilibrium quantity.
decrease; increase
A decrease in supply will lead to an __________ in the equilibrium price and a __________ in the equilibrium quantity.
increase; decrease
Prices are __________ during the period of heaviest consumption is the result of high demand.
highest
Prices are __________ during the period of heaviest consumption when heavy consumption is the result of high supply.
lowest