Chapter 3 - Supply and Demand
_____ increases when cheaper to produce or they get more money.
Supply
The _____ ____ ____ is the largest dollar amount the buyer would be willing to pay for a good. This price ______ when the quantity of the good increases
buyer's reservation price, declines
_____ ____ is the difference between the buyer's reservation price and the price they pay _____ _____ is the difference between the price received by the seller and their reservation price _____ ____ is the difference between he buyers reservation price and the seller's reservation price
buyer's surplus, seller's surplus, total surplus
______ is a balanced or unchanging situation in which all forces at work within a system are canceled by others. No participant in the market has any reason to alter their behavior. When cost to seller is the same as benefit to buyer. _____ _____ is a price at which a good will sell (where the supply and demand curves intersect). ______ _____ is the quantity of it that will be sold (where the supply and demand curves intersect)
equilibrium, equilibrium price, equilibrium quantity
The ______ buyer is the person with the exact reservation price at the quantity demanded
marginal
The _____ for any good consists of all buyers and sellers of that good
market
______ _____ occurs in a market when all buyers and sellers are satisfied with their respective quantities at the market price and all resources are exploited. Supply and demand curve _____ here. Sellers would be okay to sell at a higher price, but it means it is the point that they're able to sell all they wish to sell at that price. It won't change cause then consumers would buy ____ if price increase, and if decrease, suppliers will make less _____.
market equilibrium, intersect, less, profit
A ____ ____ is a good whose demand curve shifts rightward when the income of buyers increase and leftward when the incomes of buyers decrease, while a ____ _____ is a good whose demand curve shifts leftward when the incomes of buyers increase and rightward when the incomes of buyers decrease
normal good, inferior good
Related goods: Advil and Ibuprophen are ____ ____, tires and macbooks are ____ _____, and PB&J are _______.
perfect substitutes, unrelated goods, perfect complements
If supply and demand curves both shift, you can make predictions about ____ but nothing else
price
A _____ _____ is the maximum allowable price specified by law which can cause _____ _____ in items (as less price less supply) A price ceiling above the market eq means _____.
price ceiling, excess demand, nothing
Rent controls cause NYC to have an apartment ______ as landlords don't want to put up as many apartments for rent if they are not getting enough money. Also landlords now can leave their apartments ______ as there are so many people looking for apartments. This also causes apartments to be converted to co-ops or ____. Also this forces bad roommates to stick together and widows to stay in large apartments because they have no _____ to reenter the market, as their apartments are so cheap. Also rent controls allow for landlords to ______ because there would be an economic penalty in doing so.
shortage, unmaintained, condos, incentive, discriminate
Two goods are _______ in consumption if an increase in the price of one causes a _____ shift in the demand curve for the other (or if an increase causes a _____ shift). They are more _____ when used together. There is no change in the _____ curve though with price changes.
two goods, leftward, rightward, valuable supply
_____ __ ___ ____ is an economics metaphor for unexploited gains from an exchange when the seller's reservation price is lower than the buyer's, which is when sellers would expand production and increase price. Sellers easily detect this.
cash on the table
______ Economies - Communist economies _______ Economies - Israeli kutz (everyone decides what goods, how, who) ________ Economies (free market) - USA system where everyone makes their own say, decentralized, works remarkably well
command, cooperative, individualistic
Simultaneous shifts in supply and demand: If supply and demand move in the same direction, then you can make ______ predictions about Q* and P*. Sometimes if opposite you can predict price.
definitive
A ______ _____ is a schedule or graph showing the quantity of a good that buyers wish to buy at a price with the price on the _ axis and quantity on the _ axis. It is always. As the price goes ___, demand goes down. As the price goes ___, demand goes up. As incomes go up, _____ goes up.
demand curve, y, x, up, down, demand
A shift in the entire demand curve is a change in _____. A movement along the demand curve that occurs to a change in price is a change in_____. A shift in the entire supply curve is a change in _____. A movement along the supply curve that occurs to a change in price is a change in _____.
demand, quantity demanded, supply, quantity supplied.
Current prices will never change ____, just quantity demanded. Also changing input price will not change demand, just quantity demanded through the _____ curve.
demand, supply
Increasing demand (does, doesn't) cause increase supply, only reduced input cost or higher sales cost do.
doesn't
_____ _____ is a condition that occurs when all goods and services are produced and consumed at their respective social optimal levels. The ____ _____ states that efficiency is an important social goal bc when the econ. pie grows larger, everyone can have a larger slice.
efficiency principle
_____ ______ states that a market in eq. leaves no unexploited opp. for individuals but may not exploit all gains achievable though collective action.
equilibrium principle
______ _____ is the amount by which quantity supplied exceeds quantity demanded when the price of a good exceed the equilibrium price ______ _____ is the amount by which quantity demanded exceeds quantity supplied when the price of a good lies below the equilibrium price
excess supply, excess demand
An increase in demand will result in a _____ eq. price and ____ quantity demanded. A decrease in demand will result in a ____ eq. price and ____ quantity demanded. An increase in supply will lead to an ______ in the eq. price and an _____ in the eq. quantity. A decrease in supply will lead to an _____ in eq. price and a ______ in eq. quantity.
greater, more, lower, less, decrease, increase, increase, decrease
_______ _______ start with price on vertical axis and look at corresponding demand _______ ______ start with demand on horizontal axis and look at corresponding price
horizontal interpretation, vertical interpretation
The _____ _____ is why private markets gravitate toward equilibrium prices and quantities
incentive principle
The _____ _____ is why private markets gravitate toward equilibrium prices and quantities. Say there is excess supply because the market equilibrium for a slice of pizza is $3, but it is being sold for $4. One seller will inevitably ____ prices to get rid of excess supply, so other sellers have an ______ to match. They all lower until it hits $_ at the market equilibrium. Now, say there is excess demand because the market eq. for a slice of pizza is $3, but it is being sold for $2. One buyer will inevitably offer to pay _____ to secure their slice of pizza, so other buyers will match until it hits $_.
incentive principle, lower, incentive, 3, more, 3
The ______ ____ explains why consumers simply cannot afford the item when the price goes up, so demand goes ____.
income effect, down
Airline tickets ______ in the summer because of greater demand (higher eq. price) but same supply. Sweet corn _______ in the summer because of greater supply (same demand) causing lower eq. price.
increase, decrease
Factors that ______ supply are reduction of price of inputs, improving tech that reduces prod. cost, improved weather, increase number of suppliers, _____ in expected future prices (sell now)
increase, decrease
Factors that _______ demand: increase preference, increase income for normal goods, decrease income for inferior goods, decrease in prince of complementary food or service (jelly decreases price so pb increases in demand), increase in the price of a substitute good/service, increase in population, _____ in expected future prices & vice-verse
increase, increase
For cigarettes the gov may ____ the price to get to a socially optimal quantity. For vaccines it may ____ the price to get to a socially optimal quantity.
increase, lower
Tech advances or reduced costs of inputs can lead to decreased product cost to consumer, an _____ demand and supply will result. Also compared to summer, sunscreen in the winter has _____ price, amount being sold, demand. However ____ stays the same
increase, lower, supply
The ____ ___ ____ states that all else equal, the higher is the price of the good, the _____ is the quantity demanded because of the _____ ____ and ____ ____. The ____ ___ ___ states that all else equal, there is a pos. relationship between quantity supplied and price
law of demand, price, lower, substitution effect, income effect
If production (input) costs increase, the supply curve shifts ______, causing the eq. price to ____ and the eq. quantity to ____. The demand curve (does, doesn't) change.
leftward, rise, fall, doesn't
When demand shifts left and supply shifts right, eq. price ____ but eq. quantity may rise or fall depending on magnitude.
lowers,
If the cost to produce an item decreases (perhaps wage decreases or tech advances or good weather for crops) then the supply curve shifts _____ and the eq. quantity (price) ______. The demand curve (does, doesn't) change
rightward, decreases, doesn't
The ______ _____ ____ is the lowest dollar amount the seller would be willing to sell the good, which is the smaller dollar amount for which a seller would be willing to sell an additional unit and the marginal cost of producing another unit of good. This price ______ as more quantity demanded increases.
seller's reservation price, drecreases
_____ ____ _____/ efficiency is the quantity of a good that results in the max. possible economic surplus from producing and consuming the good, when the marginal cost and benefit are the same. It is when market is at ______ efficiency. When a good is less than this, a boost in ______ to boost econ. surplus will happen. Opposite is true. A market eq price can exceed ____ ____ ____ if there is pollution or others benefit without doing something.
social optimal quantity, economic, production, social optimal quantity
Something is _____ _____ when the Social marginal benefit = social marginal cost. It is not optimum when the _____ curve does not equal the social MB of the good or when the ____ curve does not equal the social MC of the good.
social optimum, demand, supply
Two goods are _______ in consumption if an increase in the price of one causes a _______ shift in the demand curve for the other (or if decrease causes a _____ shift)
substitutes, rightward, leftward
The _______ ____ states that consumers will switch to other less expensive options, which is why demand goes down when price goes ____.
substitution effect, up
The _____ ____ is a graph or schedule showing the quantity of a good that sellers wish to sell at each price. It is positive because sellers would want to sell _____ quantity if they have a high enough price
supply curve, more
Failure to achieve econ, efficiency means _____ ____ ____ is not reached, and everyone could be made better off. Market could still be in eq. though
total economic surplus