ECON

demand curve:

a function that shows the quantity demanded at different prices shifts to right if increase

supply curve:

a function that shows the quantity supplied at different prices

inferior good:

a good that consumers demand LESS of when their incomes increase

normal good:

a good that consumers demand MORE of when their incomes increase

An increase in supply refers to:

a rightward shift of the supply curve.

Imagine a free market in equilibrium. After a sudden increase in demand (but before the price can adjust), the market experiences:

a shortage.

law of supply:

as the price rises, the quantity supplied increase, all other things being equal.

What shifts the demand curve?

-population -demographics -price of other goods -substitutes

what shifts the supply curve?

1. Technological innovations 2. changes in the price of inputs 3. taxes and subsidies 4. Expectations 5. Entry or exit producers 6. Changes in opportunity costs

(Figure: PPF Nickel & Textiles) Refer to the figure. How many tons of textiles does Australia give up to produce one ton of nickel?

1/3

Angela and Ed are married. Angela can do $40 worth of household chores per hour, and Ed can do $15 worth of household chores per hour. In the labor market, Ed can earn $30/hour and Angela can earn $40/hour. The theory of comparative advantage suggests that:

Angela should specialize in household production and Ed should specialize in market work.

increasing opportunity cost:

As production of a good increases, the opportunity cost of producing an additional unit rises.

Which of the following is TRUE about demand curves?

Demand curves are negatively sloped.

Reasons:

Diminishing marginal product increasing opportunity cost

diminishing marginal product:

For a given time period, the marginal (or additional) utility or satisfaction gained by consuming equal successive units of a good will decline as the amount consumed increases.

Absolute advantage example:

GB & US wheat and cheese

comparative advantage example:

GB & US wheat and cheese divide the first number by itself and the second number by the first

Mark values his drum set at $800 and Ella values her guitar at $1,000. Suppose that Mark trades his drum set for Ella's guitar.

Mark must value Ella's guitar for at least $800, and Ella must value Mark's drum set for at least $1,000.

Demand shifts in, Supply shifts out

Price falls, can't determine quantity

Demand shifts out, Supply in

Price rises, can't determine quantity

Demand shifts in, Supply in

Quantity falls, can't determine price

Demand shifts out, Supply shifts out

Quantity rises, can't determine price

consumer surplus:

The difference between the maximum price a buyer is willing and able to pay for a good or service and the price actually paid. CS = Maximum buying price − Price paid

Productivity:

The efficency with which goods and services are produced.

Fourteenth-century potters in the Chinese city of Jingdezhen developed the technology to heat a kiln at 1,300 degrees Celsius and produce porcelain, or "china," which was particularly popular in Persia where the Koran forbade serving food on gold or silver and wealthy families were anxious for a legal way to impress their dinner guests. The potters also imported Persian cobalt to create the blue dye for the porcelain (local cobalt was not as bold in color). Which advantage(s) from trade is(are) illustrated in this passage?

The passage illustrates all of these advantages.

Five new sellers enter a market (that previously had seven) and begin producing a good. Which of the following choices explains what happens to the equilibrium Q and P?

The supply curve will shift to the right, the equilibrium P will fall, and the equilibrium Q will rise.

Anonymity on the Internet has lowered the cost of rudely confronting people. What has happened to the supply of rude confrontations?

The supply has increased, shifting down and to the right.

supply:

The willingness and ability of sellers to produce and offer to sell different quantities of a good at different prices during a specific time period.

price of complements:

Two goods that are used jointly in consumption. If two goods are complements, the demand for one rises as the price of the other falls (or the demand for one falls as the price of the other rises).

price of substitiutes:

Two goods that satisfy similar needs or desires. If two goods are substitutes, the demand for one rises as the price of the other rises (or the demand for one falls as the price of the other falls).

Both Maria and Jorge bake cookies and bread, but Maria spends less time baking each batch of cookies and each loaf of bread than Jorge does. Specialization and trade between them can benefit:

both Maria and Jorge.

opportunity cost

cost of a choice of the value of the opportunities lost

In the figure, the demand curve shifted from D0 to D1. To describe this movement, we would say that:

demand increased, which caused an increase in quantity supplied.

An increase in supply shifts the supply curve:

down and to the right.

What are the 3 zones?

efficiant inefficiant unnattainable

marginal benefits vs marginal cost

if marginal cost is less than marginal benefit: JDI if marginal cost is more than marginal benefit: bad

shift of the demand curve:

income, normal v inferior population price of substitutes price of complements expectations tastes

marginal-

incremental or additional or extra; used to describe a change in an economic variable

tastes:

is an individual's personal and cultural patterns of choice and preference

producer surplus:

is the difference between the price a producer actually gets for a commodity and the minimum price the producer would have been willing to supply the commodity for, which just follows the supply curve.

Shape:

linear bowed out

Roses grown in Kenya travel to Amsterdam and ultimately to your local flower shop because:

markets coordinate the specialization and trade necessary for the flower industry to function.

Slope=

opportunity cost

A free market maximizes:

producers plus consumer surplus

Comparative advantage:

producing goods at the lowest opportunity cost

The ______ shows all combinations of goods that a country can produce given its productivity and ______.

production possibilities frontier; supply of inputs

incentives matter

rewards and penalties that motivate behavior

A technological innovation in the production of golf balls increases ______, causing the price to ______ and the ______.

supply; fall; quantity demanded to increase

Absolute advantage:

the ability to produce the same good using fewer inputs than another producer

Income effect:

the change in the quantity of a good a consumer demands because of a change in income, holding prices constant; affects buyer power

Substitution effect:

the change in the quantity of a good that a consumer demands when the good's price rises, holding other prices and the consumer's utility constant

Law of Demand:

the lower the price, the greater the quantity demanded, all other things being equal.

Productions possibilities frontiers:

the possible combinations of two goods that can be produced in a certain period of time under the conditions of a given state of technology and fully employed resources

Equilibrium and the adjustment process:

the price at which the quantity demanded is equal to the quantity supplied

quantity demanded:

the quantity demanded that buyers are willing and able to buy at a particular price.

quantity supplied:

the quantity that sellers are willing and able to sell at a particular price

When the price of inputs increase:

the supply curve shifts up and to the left.

shortage:

too little of a good QS<QD

surplus:

too much of a good QD < QS

When countries produce those goods for which they have a comparative advantage:

total production and consumption will increase in all countries.

Specialization:

trade increases productivity through specialization When people, businesses, regions, and/or nations concentrate on goods and services that they can produce better than anyone else. "Make what you do best, then trade for the rest."