ECO 222 (Microeconomics)

Game Theory Assumptions

1. preferences are clearly defined 2. players rationally choose strategies to achieve objectives

Utility

a hypothetical measure of the satisfaction one receives from consuming a good or service

Competitive Market

a market in which there are so many buyers and so many sellers that each has no influence over market price

Average Cost

a measure of productivity (in terms of cost efficiency)

Informational Advertising

informs consumers about aspects of product and reduces search costs

Regressive Tax

tax becomes a smaller percentage as income increases (e.g. FICA--federal insurance contributions act)

Law of Diminishing Marginal Utility

as one consumes more of a given product, the additional satisfaction from each additional unit falls

Chicken Games

players hold out optimal outcome, however, if neither side gives in, the worst outcome occurs (e.g. labor disputes that end up in long strikes or lockouts)

Second-Degree Price Discrimination

price discrimination charging different prices based on the quantity purchased (e.g. block pricing)

If the demand curve shifts rightward, the:

price in the market will increase

Production

the process of converting factors of production to outputs

Normal Rate of Return

the return just sufficient to keep investors satisfied (represents the opportunity cost of capital); normal profit equals an economic profit of zero

A local business earned total revenue of $100,000 against economic costs of $85,000, with the difference going to investors. If investors put in $200,000 and expect a 5% return on their investment, this business is:

earning a positive economic profit

Profits in excess of both explicit and implicit costs are:

economic profits

Price Elasticity of Supply

measures responsiveness of suppliers to changes in price (Es=% change in quantity/% change in price)

Assuming fixed quantities of other inputs, the total product curve relates:

output to variable input

Rate of Return Regulation

pricing allows the firm to earn a normal return on investment

Profit Maximization Rule

produce at level of output where marginal revenue is equal to marginal cost (MR=MC)

Income effect

when higher prices essentially reduce consumer income, the quantity demanded for normal goods falls

Tit-for-tat Trigger

cooperation is rewarded and defection is punished

X-Inefficiency

occurs when monopolies squander (such as lavish retreats and perks)

To gain from trade, a country should:

specialize in the commodity for which it has a comparative advantage

According to the law of supply, producers will supply more of their products when:

the price rises

In a market-based economy, scarce resources are allocated by:

the price system

Specialization

the situation in which each person specializes in the task that he or she is good at performing

A firm will stop all production when the market price falls below the:

average variable cost curve

A market economy is also known as a _____ economy, and decisions are made by _____.

capitalist; private individuals

Income Elasticity of Demand

measures consumers' responsiveness to changes in income (Ey=% change in quantity/% change in price)

Price Elasticity of Demand

measures the responsiveness of consumers to changes in price (Ed= % change in quantity/% change in price)

(Figure: Interpreting Short-Run Cost Curves) Given the information from the figure, if price equals $0.40, the firm should:

shut down

The reason price equals marginal revenue in a perfectly competitive market is that:

since price is constant, the added revenue from selling one more unit is the price

Model

a simplified representation of a real situation that is used to better understand real-life situations

Forecast

a simple prediction of the future

Market Failure

failure to provide the socially optimal amount of goods and services

Economic Costs

include both explicit and implicit costs

Total Revenue

price x quantity

Grim-trigger

retaliation is permanent

If marginal cost (MC) is less than average total cost (ATC), then:

ATC is decreasing

Buyers

tell the market what they will buy and for how much

The conversion of resources to satisfy wants is described as:

production

If you were not studying economics, you could be doing one of the following: sleeping in (which you value at $5), playing cards with your friends (which you value at $10), or working (you would have earned an extra $8). The opportunity cost of studying economics is therefore:

$10

Jonathan purchased coffee for $5 at Jennifer's coffee shop; however, he was willing to pay $9. Jennifer was willing to accept $3 for the coffee. The results of this transaction are a consumer surplus of:

$4 and a producer surplus of $2

Economic Factors of Production

-Land --------------------> -Labor -------------------> Production --> Output -Capital ------------------> Method -Entrepreneurial Ability ->

Economics assumes that people:

-are rational -are self-interested -respond to incentives

In the market for cable television, fewer people are subscribing to cable while the cost of providing cable television has increased. As a result, we can expect a(n):

unknown change in the equilibrium price but a decrease in the equilibrium quantity of cable television

Characteristics of monopolistic competition:

-many buyers and sellers -differentiated products -little to no barriers to market entry or exit -no long-run economic profit -some control over price (e.g. restaurant industry)

Among perfectly competitive firms, profit maximizing will always operate where:

MC = MR

Long-run equilibrium occurs where:

P=MR=MC=LRATCmin

Comparative advantage exists when one country can produce:

a good at a lower opportunity cost than another country

Natural Monopoly

a monopoly with large economies of scale, often protected by the government such as the U.S. Postal Service

Short Run

a period in which the number of firms does not change but each firm can adjust output levels; a period when at least one factor of production is fixed and cannot be altered

Long Run

a period long enough for new firms to enter

Market Period

a period so short that output and number of firms are fixed

All of these are explicit costs, EXCEPT: a. the salary an entrepreneur could have earned in a corporate job b. salaries paid to employees c. business taxes paid by an entrepreneur d. money paid for raw materials

a. the salary an entrepreneur could have earned in a corporate job

Which goal BEST explains why entrepreneurs seek to meet a market need? a. to earn a profit b. to show altruism c. to meet a legal requirement d. to fulfill a vow

a. to earn a profit

Suppose the country of Alphaland can produce more cars than Omegaland can produce, given the same resources. An economist would conclude that Alphaland has a(n) _____ in producing cars.

absolute advantage

In economics, capital refers to:

actual manufactured buildings and equipment used in the production process

Cartel

an agreement between firms (or countries) in an industry to formally collude on price and output and then agree on the distribution of production

Ceteris Paribus

an assumption that all other relevant factors remain unchanged

Firm

an economic institution that transforms inputs to goods and services for consumers

Market Economy

an economic system in which production and prices are determined by unrestricted competition between privately owned businesses (aka capitalist/laissez-faire/free economics)

Central Planning Economy

an economy where decisions on what to produce, how to produce, and for whom are taken by the government in a centrally managed bureaucracy (aka command/communist/socialist economy)

Nash Equilibrium

an outcome that is selected as a best response by all players; occurs when all players in the game use an optimal strategy in response to all other players strategies

Progressive Tax

as income increases income is taxed at a higher percentage (e.g. federal income tax)

Technology

better, cheaper, faster ways to produce things (source of economic growth)

Price Discrimination

changing different prices to different customers

Third-Degree Price Discrimination

charging different prices to different groups of consumers with varying elasticities (e.g. movie theater tickets students/adults/seniors)

Leadership Games

competitive games in which one player is dominant (e.g. airlines and wireless competition between large and small carriers)

On a graph of the long-run average total cost curve, constant returns to scale are shown as:

constant average costs as output expands

Rent Seeking

costly actions (such as lobbying) taken to avoid or limit competition

Which question is NOT an example involving marginal analysis? a. Should Boeing hire another assembly-line worker? b. Should a restaurant stay open another hour? c. Should a university offer another section of a class? d. Should K-Mart rebrand all its stores to using the Sears name?

d. Should K-Mart rebrand all its stores to using the Sears name?

Explicit Costs

expenses paid directly to some entity (e.g. wages, lease payments, raw materials, taxes, etc.)

Average Cost Pricing

firms are forced to charge a price equal to ATC

First-Degree Price Discrimination

firms capture all of consumer surplus by charging each consumer his or her maximum willingness-to-pay (e.g. accountants)

Total costs are a combination of:

fixed costs plus variable costs

Productive Efficiency

goods are supplied at the lowest possible cost

Efficient

how well resources are reused and allocated (market wage); taking all opportunities to make some people better off without making other people worse off

Budget Line

illustrates the combinations of two goods that can be purchased with a given income and the prices of each good

The calculation for economic profit is total revenue minus:

implicit and explicit costs

A shift to the right of the supply curve could be caused by a(n):

improvement in production technology

Accounting Costs

include only explicit costs

Serena sells soybeans in a perfectly competitive market. If her MC = $3, her MR = $4, her ATC = $5, and her AVC = $2, then she should:

increase production

Subsidies on domestically produced sport utility vehicles cause a(n) _____ in the supply of _____ sport utility vehicles.

increase; domestic

Marginal Decision

involves analyzing incremental costs and incremental benefits arising from a choice or decision (regarding one additional unit of a given good)

The study of economics:

is about people making decisions regarding their use of scarce resources

Resources

labor, capital, and land (and/or natural resources), entrepreneurship (additional resources should cause the economy to grow, holding other things constant)

If there is only one provider of electricity in a city, then that market is likely to fail due to:

lack of competition

Cross Elasticity of Demand

measures the responsiveness of demand for one good to changes in the price of another good (Eab=% change in quantity of A/% change in price of B)

Elasticity

measures the responsiveness of one variable to changes in another (Ex,y= % change in X/% change in Y)

Jack is making a normal profit by selling firewood in a perfectly competitive market. His price is $100 per load. If the market price goes up to $120, then he can expect:

more competition in the future

The government often strictly regulates noise and chemical pollution by industry to overcome which market failure?

negative externality (external costs)

The graph we could draw to represent the combinations of two goods that are possible within a given society at full employment is a(n):

production possibilities frontier (PPF)

Differentiated Products

products are similar but not identical (e.g. restaurants)

Assumption

rational consumers will allocate their incomes to maximize their own well-being

Economic models must:

rely on the ceteris paribus assumption

Trembling Hand Trigger

retaliation is delayed

(Figure: Interpreting Short-Run Cost Curves) Given the information from the figure, if price equals $1.00, the firm should:

stay open because it is making an economic profit

(Figure: Interpreting Short-Run Cost Curves) Given the information from the figure, if price equals $0.70, the firm should:

stay open in the short run because will minimize its loss

Money spent by a politician for a pollster who would determine the chances of the politician's winning an upcoming local election is a(n):

sunk cost

Flat Tax

tax is a fixed percentage regardless of income (e.g. medicare tax)

Sellers

tell the market what to sell, for how much, and what method

Comparative Advantage

the ability to produce a good or service at a lower opportunity cost

If a firm can change all of its factors of production, then it is operating in:

the long run

Deadweight Loss

the loss of consumer surplus and producer surplus caused by the inefficiency of a market that is not operating at equilibrium

The Herfindahl-Hirschman Index (HHI)

the main measure of market concentration used to evaluate mergers and judge monopoly power HHI<1500: industry is unconcentrated 1500<HHI<2500: industry is moderately concentrated HHI>2500: industry is highly concentrated

Total Utility

the total satisfaction from consuming a given quantity of a good or service; rises at a decreasing rate then falls

Opportunity Cost

the value of the next best alternative that is forgone, or given up, when we pursue an activity (increases as more of a good is produced)

Tradeoff

there is an alternative in pursuing an activity

Average Product

total output divided by the amount of labor input (Q/L)

Optimal Consumer Choice

where the budget line is tangent to the highest possible indifference curve

A normal profit is equal to:

zero economic profit

Limitations of Marginal Utility Theory

-can consumers really measure the utility they receive from various goods? -do consumers calculate the marginal utility associated with each activity?

Factors that Shift Supply Curve

-changes in cost of resources -improvements in technology -taxes and subsidies -changes in the prices of related goods or services -changes in the number of producers -changes in expectations

Factors that Shift Demand Curve

-changes in income -changes in prices of related goods and services -changes in consumer preferences -changes in number of consumers -changes in consumer expectations

Constraints of Trade

-cost of trade (including transportation, communications, and general costs of business) -diminishing returns to specialization -governments limiting trade to help certain industries or in response to a recession

When an industry expands, how do resource prices change?

-decreasing-cost industry: economies of scale result in lower prices -constant-cost industry: no significant changes in cost -increasing-cost industry: increasing demand for raw materials increases prices

Factors that Shift Labor Demand

-demand for output -education and training -technology (includes substitutes and complements) -number of companies -government regulations -prince and availability of other inputs

Technology alters the shape of the long-run ATC curve:

-enhances production techniques -improves global communications -provides computing power for easier expansion and economies of scale

Conditions for Price Discrimination

-firms must have some control over price -firm must be able to separate the market into groups based on elasticities of demand -firms must be able to prevent arbitrage

Production costs in the short run:

-fixed costs (overhead) do not vary with the quantity produced -variable costs rise as the level of output increases -total costs are the sum of fixed and variable costs -sunk costs already incurred cannot be recovered (rational decisions about future profits ignore sunk costs)

Long-Run Adjustments for Monopolistic Competition

-if firms are earning economic profits, new firms will enter the industry -competition reduces demand for each individual seller -in the long run, each seller earns normal profts

Production costs in the long run:

-in the long run, all inputs can be adjusted, therefore, there are no fixed costs in the long run -firms choose the plant size appropriate for their market -each plant size is associated with a unique long-run cost structure

Characteristics of perfect competition include:

-many buyers and sellers -homogeneous (standardized) products -no barriers to market entry or exit -no long-run economic profit (e.g. corn and wheat industries)

Partnership

-more than one owner -can divide tasks among partners -personal assets of all owners subject to unlimited liability (includes negligence by partners)

Determinants of Price Elasticity of Demand

-number of substitutes available -the cost as a proportion of one's budget -whether a good is a necessity or a luxury -the period to respond to changes in price

Factors that Shift Labor Supply

-number of workers -required education -government policies

Characteristics of monopoly include:

-one firm -no close substitutes for product -nearly insuperable barriers to entry -potential long-run economic profit -substantial market power and control over price (e.g. NFL)

Sole Proprietorship

-one owner -easy to start -limited access to financial capital -owner's personal assets subject to unlimited liability

Corporation

-owners called stockholders -have legal rights -can raise money by issuing stocks and bonds -owners protected by limited liability: losses limited to value of stock

Characteristics of oligopoly include:

-relatively few firms -interdependent decision making -substantial barriers to market entry -potential long-fun economic profit -shared market power -considerable control over price (e.g. automobile industry)

PPF (Production Possibilities Frontier)

-represents the trade offs facing a hypothetical economy that produces only two goods -shows the maximum quantity of one good that can be produced for any given production of the other , given available resources and technology -illustrates opportunity cost, efficiency, and economic growth

Economies of scale result from:

-specialization of labor and management -better use of capital -complementary production techniques

Cartels are more stable when:

-they have few members and each member has similar goals -they are maintained with legal provisions -they are unable to differentiate their products -each firm has similar cost structure -there are significant barriers to entry

Sources of Market Power

1. control of a key input of production 2. economies of scale: large fixed costs 3. government protection with patents and copyrights

Main Sources of Market Failure

1. lack of competition 2. asymmetric information 3. existence of external benefits or costs 4. existence of public goods

Five Psychological Factors Influencing Economic Behavior

1. sunk cost fallacy: decisions are influenced by costs already incurred instead of how the decision affects current well-being (e.g. overeating to make the most of your money) 2. framing bias: techniques used to steer individuals to making decision over another (e.g. buy-one-get-one-free deals) 3. overconfidence (e.g. not saving enough because you think you'll earn it later) 4. overvaluing the present relative to the future (e.g. same as above) 5. altruism (e.g. tipping at restaurants because everyone else does it/American culture)

All firms must determine:

1. what a market wants 2. how to produce the good or service

Staci's Sign Shoppe makes signs for businesses. Staci is currently producing 210 signs per week with three employees. She hires an additional worker and total output per week rises to 328 signs. The marginal product of the last worker is _____ signs.

118

Microeconomics

deals with the behavior of individual decision-making agents such as individuals, households, firms, and industries

Macroeconomics

deals with the economy as a whole

_____ occurs when goods and services are produced with as few resources as possible, while _____ occurs when the mix of goods and services produced is the most desired by society.

Production efficiency; allocative efficiency

Suppose that if the United States produced only oil, it could produce 25 million barrels; and if it produced only microchips it could produce 20 million chips. Suppose that if Mexico produced only oil, it could produce 16 million barrels; and if it produced only microchips, it could produce 8 million chips. Which statement is then correct?

The United States has an absolute advantage over Mexico in producing both goods.

Long run

a period sufficient for a firm to adjust all factors of production, including plant capacity

Which of the following is equivalent to average variable cost (AVC)? a. ATC - AFC b. ATC + AFC c. ATC + MC d. ATC - MC

a. ATC - AFC

Economies of Scope

producing interdependent products helps to reduce production and marketing costs

Which scenario does NOT fall under the category of microeconomics? a. The cost of living in the United States has risen due to rising housing and food prices. b. Pepsi experienced an increase in revenue last quarter. c. Cooks at McDonalds supply labor in return for wages. d. Jonathan decided to go to the movies instead of going to work.

a. The cost of living in the United States has risen due to rising housing and food prices.

If the variable cost for five shoes is $50 and the variable cost of six shoes is $80, which statement is true? a. average variable cost for the fifth shoe is $10. b. the marginal cost for the sixth shoe is $80. c. total costs for the sixth shoe is $130. d. average variable cost of the sixth shoe is $10.

a. average variable cost for the fifth shoe is $10

The limits on international trade include all of these EXCEPT: a. decreasing opportunity costs and increasing returns. b. increasing opportunity costs and diminishing returns. c. transportation and communication costs. d. trade may hurt some industries and individuals within each country.

a. decreasing opportunity costs and increasing returns

The perfectly competitive market structure assumes all of these EXCEPT: a. zero economic profit in the long run. b. ease of entry and exit. c. identical products. d. a small number of buyers and sellers.

d. a small number of buyers and sellers

When perfectly competitive firms are earning short-run economic profits, all of these happen, EXCEPT: a. the number of firms in the industry will fall. b. firms are attracted to the industry by the profits. c. supply increases. d. market prices fall.

a. the number of firms in the industry will fall

Which of these shows characteristics of a perfectly competitive firm? a. Devin's new software firm is spending a lot of money on research and development. b. JorDawn cannot tell which farm the peaches he purchased came from because all the peaches look alike. c. Donelli's Pizza was voted the best pizza in town by readers of the local newspaper. d. People who want to open a bank in Kansas must obtain a charter from the U.S. Comptroller of the Currency or the state of Kansas.

b. JorDawn cannot tell which farm the peaches he purchased came from because all the peaches look alike.

A shift to the right of the demand curve would NOT be caused by a(n): a. increase in income given that shoes are a normal good b. decrease in the population c. increase in the price of a substitute d. decrease in the price of a complement

b. decrease in the population

Which of these is NOT an economic factor of production? a. land b. labor c. entrepreneurial ability d. money

d. money

Which event would shift the supply curve for gasoline to the right? a. an increase in property taxes b. a technological innovation in the solar power energy industry c. a technological innovation in the oil-drilling industry that dramatically lowers the cost of exploration d. an explosion in a major refinery

c. a technological innovation in the oil-drilling industry that dramatically lowers the cost of exploration

Which of the following is NOT considered an explicit cost? a. electricity b. rent c. depreciation on equipment d. building insurance

c. depreciation on equipment

For a perfectly competitive industry, all of these are true in the long run, EXCEPT: a. consumer surplus is maximized. b. the industry has achieved allocative efficiency. c. firms are earning a positive economic profit. d. the industry has achieved productive efficiency.

c. firms are earning a positive economic profit

Which of these does NOT lead to economies of scale? a. specialization of resources b. better use of complementary technologies c. increased bureaucratization d. better use of existing capital

c. increased bureaucratization

Incidence of Tax

describes who bears the economic burden of a tax, influenced by elasticity

Production Efficiency

goods and services are produced at their lowest possible resource (opportunity) cost

A typical total product curve goes through four stages. What is the correct order for these stages?

increases at an increasing rate, increases at a decreasing rate, reaches a maximum, decreases

Contestable Markets

industries in which the threat of competition keeps prices low

Persuasive Advertising

influences consumers' emotions and tends to drive up costs of products

A firm is an economic institution that transforms _____ of production into _____ for consumers.

inputs; outputs

Markets

institutions that bring buyers and sellers of a particular good or service together

If a firm has $10,000 in variable costs and no fixed costs, then the time period is referred to as the:

long run

A local university is considering the construction of a parking garage for which it has yet to finalize design plans. This should be considered a _____ decision for the university.

long-run

If a price floor is set above the equilibrium price in the market, consumer surplus will be:

lower than it would be without the price floor

The price of a mango is $2 and a farmer sells 2,000 mangoes. However, the costs to the farmer are $400 for labor, $1,600 for rent, and $2,000 for advertising. Based on the above information, the farmer:

makes $4,000 in total revenue

Normative Economics

makes prescriptions about the way the economy should work (about prescription)

The change in total costs arising from the production of additional output is:

marginal cost

Price System

market economies use prices to allocate resources, goods, and services

Price Cap Regulation

maximum prices that firms can charge, adjusted to cost conditions

Implicit Costs

opportunity costs of using resources (e.g. depreciation, asset depletion, forgone wages)

If the supply curve shifts leftward, the:

price in the market will increase

Demand Curve

represents the quantities of a good that consumers are willing and able to purchase at various prices holding other factors that affect demand constant

Supply Curve

represents the quantities of a good that producers are willing and able to produce at various prices, holding other factors that affect supply constants

To say that economics is a way of thinking about how people make rational decisions means that people:

respond to incentives

Incentives

rewards and penalties that motivate behavior

Law of Demand

shows a negative or an inverse relationship between the price of a good (P) and the quantity demanded of the good (Qd); if P increases then Qd decreases (and vice versa)

Law of Supply

shows a positive/direct relationship between the price of a good (P) and the quantity supplied (Qs) of the good; if P increases then Qs increases (and vice versa)

Indifference Curve

shows all the combinations of two goods where the consumer has the same level of satisfaction; show how diminishing marginal utility determines the tradeoff a consumer makes between consuming more of one good and less of another; provides a framework fora more in-depth analysis of income and substitution effects; the farther out an indifference curve from the origin the higher the level of total utility it indicates

Absolute Advantage

the ability to produce more of a good or service with a given amount of resources or producing a given amount of output with a smaller amount of resources

Marginal Utility

the additional satisfaction from consuming one more unit of a good or service; marginal utility analysis studies consumer decision making in the face of budget constraints; falls because of diminishing returns and can become negative

Positive Economics

the branch of economic analysis that describes the way the economy actually works (about description)

Marginal Product

the change in output resulting from a one unit increase in labor (change in Q/ change in L)

Marginal cost

the change in total cost from the production of one more unit of output (MC= change in total cost/ change in quantity)

Marginal Revenue

the change in total revenue that results from sale of one additional unit of a product (MR= change in total revenue/ change in quantity)

Producer Surplus

the difference between the market price of a good and the minimum price that its producer is willing to sell their products for (form of earnings); producer surplus= price (P)-seller's minimum willingness-to-sell (WTS)

Consumer Surplus

the difference between the maximum price that consumers are willing and able to pay for a good and the amount that they actually pay for the good (form of savings); consumer surplus=buyer's maximum willingness-to-pat (WTP)- price (P)

Equity

the fairness of various issues and policies (minimum wage); everyone gets his or her "fair share"

Allocative Efficiency

the mix of goods and services is just what society desires

Elasticity of Demand

the more inelastic the demand, the greater the tax burden on consumers; the more elastic the demand, the greater the tax burden on producers

Elasticity of Supply

the more inelastic the supply, the greater the tax burden on producers; the more elastic the supply, the greater the tax burden on consumers

The opportunity cost of buying a ticket to a major league baseball game and then going to the game is:

the next best alternative that could have been undertaken

According to the law of demand, people buy more of a good when:

the price falls

If a price floor is set below the equilibrium price in the market, consumer surplus will be:

the same as it would be without the price floor

Four-Firm Concentration Ratio

the share of industry sales accounted by the four largest firms

Behavioral Economics

the study of how human psychology enters into economic behavior as a way to explain why individuals sometimes act in predictable ways counter to the economic models

Game Theory

the study of how individuals and firms make strategic decisions to achieve their goals when other players or factors can influence that outcome (e.g. business pricing, war, litigation, politics, board games); components--> players, strategies, payoff, information, outcomes

Economics

the study of the ways individuals, firms, and society make decisions to allocate limited resources to competing wants

Total Surplus (TS)

the sum of consumer (CS) and producer surplus (P.S.); TS=CS+PS; maximized when markets are efficient

When markets are efficient:

the sum of consumer and producer surplus is maximized

Electricity is essential in the production of aluminum. If electricity prices increase:

the supply curve for aluminum shifts leftward

In economic terms, the short run is:

the time over which at least one factor of production is fixed

Market equilibrium occurs when:

there is no incentive for prices to change in the market, quantity demanded equals quantity supplied, and the market clears

"Thinking at the margin"

thinking about your next step forward (the cost/meaning of an additional action

Anti-Trust Policy Goal

to preserve competition and prevent monopolies with their maximum market power from arising in the first place

_____ is the price per unit times the number of units sold.

total revenue

Profits are equal to the difference between _____ and _____.

total revenue; total costs

Substitution Effect

when the price of one good rises, consumers will substitute other goods for that good, therefore, the quantity demanded for the higher-priced good falls