Econ Ch. 3
Efficiency
a condition that occurs when all goods and serves are produced and consumed at their respective socially optimal levels
Inferior Good
a good whose demand curve shifts leftward when the incomes of buyers increase and rightward when the incomes of buyers decrease
Normal Good
a good whose demand curve shifts rightward when the incomes of buyers increase and leftward when the incomes of buyers decrease
Price Ceiling
a maximum allowable price, specified by law
Change in the Quantity Demanded
a movement along the demand curve that occurs in response to a change in price
Change in the Quantity Supplied
a movement along the supply 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
Cash on the Table
an economic metaphor for unexploited gains from exchange
Equilibrium
balanced
Market
consisting of all the buyers and sellers of a good
Demand Curve
demonstrates the quantity of a good buyers wish to buy at each price
Complements
if a good increases in price, it causes a leftward shift in the demand curve for the other (or if a decrease causes a rightward shift)
Substitutes
if a good increases in price, it causes a rightward shift in the demand curve for the other (or if a decrease causes a leftward shift)
Market Equilibrium
occurs in market where all buyers and sellers are satisfied with their respective quantities at the market price
Supply Curve
shows the quantity of a good that sellers wish to sell at each price
Excess Demand
the amount by which QD exceeds QS when the price of a good lies below the equilibrium price
Excess Supply
the amount by which QS exceeds QD when the price of a good exceeds the equilibrium price
Substitution Effect
the change in the QD of a good that exults because buyers switch to or from substitutes when the price of the good changes
Income Effect
the change in the QD of a good that results because a change in the price of a good changes the buyer's purchasing power
Buyer's Surplus
the difference between the buyer's reservation price and the price he or she actually pays
Total Surplus
the difference between the buyer's reservation price and the seller's reservation price
Seller's Surplus
the difference between the price received by the seller and his or her reservation price
Buyer's Reservation Price
the largest dollar amount the buyer would be willing to pay for a good
Socially Optimal Quantity
the quantity of good that results fin the maximum possible economic surplus from producing an consuming the good
Seller's Reservation Price
the smallest dollar amount for which a seller would be willing to sell an additional unit, generally equal to marginal cost
Equilibrium Price/Quantity
where supply and demand intersect
