Economics Final Exam

When does a shift occur?

when there is a change in a relevant variable that is NOT measured on either axis. Increase (shift) in Demand Income Tastes Expectations Shift (increase) in Supply Input Prices (costs) # of suppliers Expectations

A good is excludable if

people can be prevented from using it

A consumer's willingness to pay directly measures

how much a buyer values a good

A total-cost curve shows the relationship between the

quantity of output produced and the total cost of production.

Quantity Supplied

refers to the amount suppliers wish to sell (movements along the curve)

Supply

refers to the position of the supply curve (shifts)

Buyers

Demand

Profit is defined as total revenue...

minus total cost

Quantity Demanded

The amount of a good that buyers are willing and able to purchase

Which of the following events would cause both the equilibrium price and equilibrium quantity of number two grade potatoes (an inferior good) to increase?

...

A movement along the supply or demand curves are called a "change in the quantity supplied (or demand)"

A SHIFT of the supply or demand curve is called "a change in DEMAND (or supply)"

Demand Curve

A graph of the relationship between the price of a good and the quantity demanded

Market

A group of buyers and sellers of a particular good or service

Competitive Market

A market in which there are many buyers and many sellers so that each has a negligible impact on the market price

Surplus (excess supply)

A situation in which quantity supplied is greater than quantity demanded Suppliers respond to a surplus by cutting prices, which increases demand

Equilibrium

A situation in which the market price has reached the level at which quantity supplied equals quantity demanded

Demand Schedule

A table that shows the relationship between the price of a good and the quantity demanded

Factors that cause a shift in the Demand Curve:

Income Prices of Related Goods (substitutes-cause ceiling on prices firms can charge lowering the profitability) Tastes (Like the summer weather changing peoples tastes for MORE icecream/lemonade) Expectations Number of Buyers

Normal Good

Name for a good when the demand for the good falls as income falls

Supply Curve

a graph of the relationshp between the price of a good and the quantity supplied

Sellers

Supply

Supply Schedule

Table that shows the relationship between the price of a good and the quantity supplied

The Law of Supply & Demand

The claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance

Law of Demand

The claim that, other things equal, the quantity demanded (shifts along the curve) of a good falls when the price of the good rises when price falls the Q. demanded rises

Equilibrium Quantity

The quantity supplied and the quantity demanded at the equilibrium price

Market Demand

The sum of all the individual demands for a particular good or service

Complements

Two goods for which an increase in the price of one leads to a decrease in the demand for the other Cars and gasoline Ice cream and hot fudge

Substitutes

Two goods for which an increase in the price of one leads to an increase in the demand for the other (ice cream & frozen yogurt)

Inferior Good

a good for which, other things equal, an increase in income leads to a decrease in demand like a bus-pass or refurbished goods

Shortage

a situation in which quantity demanded is greater than quantity supplied Suppliers respond by raising prices which decreases demand and moves the market toward equilibrium

When a tax is placed on the sellers of a product, the

a. size of the market is decreased. b. effective price received by sellers decreases and the price paid by buyers increases. c. supply of the product decreases. d. All of the above are correct. d

Shifts of the Demand Curve to the right is called ____

an "Increase in demand" Occurs when a change increases the quantity demanded at EVERY price

A supply curve slopes upward because

an increase in price gives producers an incentive to supply a larger quantity.

A tax levied on the buyers of a good shifts the

demand curve downward by the amount of the tax

Law of Supply

the claim that the quantity supplied of a good rises when the price of the good rises