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29 Cards in this Set

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  • Back
What is market?
The market for any good consists of all buyers or ellers of that good.
What is the demand curve?
A schedule or graph showing the quantity of a good that buyers wish to buy at each price.
What is substitution effect?
The change in the quantity demanded of a good that results because buyers switch to substitutes when the price of the good changes.
What is income effect?
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.
What is the Buyer's reservation price?
The largest dollar amount the buyer would be willing to pay for a good.
What is supply curve?
A curve or schedule showing the quantity of a good that sellers wish to sell at each price.
What is seller's reservation price?
The mallest dollar amount for which a seller would be willing to sell an additional unit, generally equal to marginal cost.
What is EQUILIBRIUM?
A system is in equilibrium when there is no tendency for it to change.
What is Equilibrium price and Equilibrium quantity?
the values of price and quantity for which quantity supplied and quantity demanded are equal.
What is market equilibrium?
Occurs in a market when all buyers and sellers are satisfied with their respective quantities at the market price.
What is excess supply?
The amount by which quantity supplied exceeds quantity demanded when the price of a good exceeds the equilibrium price.
What is excess demand?
The amount by which quantity demanded exceeds quantity supplied when the price of a good lies below the equilibrium price.
What is a price ceiling?
A maximum allowable price, specified by law.
What is change in quantity demanded?
A movement along the demand curve that occurs in response to a change in price.
What is change in demand?
A shift of the entire demand curve.
What is change in supply?
A shift of the entire supply curve.
What is change in the quantity supplied?
A movement along the supply curve that occurs in response to a change in price.
What are complements?
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)
What are substitutes?
Two goods are substitutes in consumption if an increae in the price of one causes a rightward shift in the demand curve for the other. (or if a decrease causes a leftward shift)
What is a normal good?
One whose demand curve shifts rightward when the incomes of buyers increase and leftward when the incomes of buyers decrease.
what is an inferior good?
One whose demand curve shifts leftward when the incomes of buyers increase and rightward when the incomes of buyers decrease.
What is a buyer's surplus?
The difference between the buyer's reservation price and the price he or she actually pays.
What is seller's surplus?
The difference between the price received by the seller and his or her reservation price.
What is total surplus?
The difference between the buyer's reservation price and the seller's reservation price.
What is "cash on the table"?
Economic metaphor for unexploited gains from exchange.
What is socially optimal quantity?
The quantity of a good that results in the maximum possible economic surplus from producing and consuming the good.
What is efficiency? (also called economic efficiency)
Occurs when all goods and services are produced and consumed at their respective socially optimal levels.
What is the Equilibrium Principle? (Also called the "No-cash-on-the-table" principle.)
A market in equilibrium leaves no unexploited opportunities for individuals, but may not exploit all gains achievable through collective action.
What is the Efficiency Principle?
Efficiency is an important social goal, because when the economic pie grows larger, everyone can have a larger slice.