Econ Ch. 4
Shifts to supply
1. Prices of inputs used to produce the good 2. Technology used to produce the good 3. Number and scale of sellers 4. Sellers' beliefs about the future
PCM
1. Sellers all sell identical good or service 2. Any individual buyer or seller isn't powerful enough to affect market price (price takers)
Shifts to demand
1. Taste and preferences 2. Income and Wealth 3. Availability and prices of related goods 4. Number and scale of buyers 5. Buyers beliefs about the future
Diminishing marginal benefit
As you consume more of a good, your willingness to pay for an additional unit of that good decreases
New quantity supplied at given price
Associated with left and right shifts of supply curve
New market price
Associated with movement along the demand curve
In a perfectly competitive market, sellers ___________ and buyers _________.
Cannot charge more than the market price, cannot pay less than the market price
Compliments
Fall in price of one, leads to right shift for other
Substitutes
Fall in the price of one, leads to left shift for other
If you have flashlight that takes three batteries and buy batteries one at a time, which purchase will diminishing benefits set in?
Fourth battery
Willingness to pay
Highest price a buyer is willing to pay for one extra unit of a good
The concept of diminishing marginal benefits ____________ for goods that you like a lot.
Holds true
For a normal good
Increase in income causes demand curve to shift to right
For an inferior good
Increase in income shifts demand curve left
Willingness to accept
Lowest price that a seller is willing to get paid to sell an extra unit of a good
Law of Supply
States that, in most cases, the quantity supplied of a good RISES when the price of the good rises. This means we would expect a typical supply curve to by UPWARD sloping
PCM, if one seller chooses to charge a price for its good that is slightly higher than the market price, then it will _________.
lose all or almost all of its customers
Diminishing marginal benefits
means that each additional unit consumed is worth less to you than the previous one
