Chapter 3
The difference between a change in supply and a change in the quantity supplied is that the latter is
produced by a change in the product's own price while the former is caused by a variety of variables other than the product's price.
Consider the market for college textbooks. Suppose a recent economic recession has resulted in increased tastes for learning. Increased tastes for learning will shift
the demand curve for textbooks to the right.
Consumer surplus is
the difference between the highest price a consumer is willing to pay and the price the consumer actually pays.
Producer surplus is
the difference between the lowest price a firm would be willing to accept and the price it actually receives.
Consider the market for college textbooks. Suppose a recent economic recession has resulted in increased tastes for learning. The new equilibrium will be where
the new demand curve intersects the supply curve.
Consider the market for LCD TVs. Assume the market is perfectly competitive and at a market-clearing equilibrium. What area represents consumer surplus? What area represents producer surplus? Consumer surplus is equal to the area
under the demand curve and above the price for the units consumed.
What do economists mean by market equilibrium?
A market outcome where quantity supplied is equal to quantity demanded.
If a shortage exists in a market, we know that the actual price is
below the equilibrium price, and the quantity demanded is greater than the quantity supplied.
How does consumer surplus change as the equilibrium price of a good rises or falls? As the price of a good rises, consumer surplus
decreases
How does producer surplus change as the equilibrium price of a good rises or falls? as the price of a good falls, producer surplus
decreases
The price of Burger King's Whopper hamburger declines. This will cause
demand for McDonald's Big Mac hamburgers to decrease.
McDonald's eliminates $1.00 off coupons. This will cause
a movement along the demand curve for McDonald's Big Mac hamburgers.
A good for which demand increases as income rises is ________, and a good for which demand increases as income falls is ________.
a normal good; an inferior good
If a surplus exists in a market, we know that the actual price is
above the equilibrium price, and the quantity supplied is greater than the quantity demanded.
Consider the market for LCD TVs. Assume the market is perfectly competitive and at a market-clearing equilibrium. What area represents consumer surplus? What area represents producer surplus? Producer surplus is equal to the area
above the supply curve and below the price for the units produced and sold.
What do economists mean when they use the Latin expression ceteris paribus?
All else equal
The law of demand holds in the market for three goods, X, Y, and Z. An increase in the price of X causes an increase in the price of Y. A decrease in the price of X causes a decrease in the demand for Z. Which of the following conclusions is most strongly supported by the information given above?
Z is a substitute for input X in the production of Y.
How does consumer surplus change as the equilibrium price of a good rises or falls? as the price of a good falls, consumer surplus
increases
How does producer surplus change as the equilibrium price of a good rises or falls? As the price of a good rises, producer surplus
increases
Goods and services that can be used for the same purpose are ________, and goods and services that are used together are ________.
substitutes; complements
