Econ unit 2

An increase in supply

reduces the equilibrium price and increases the equilibrium quantity;

increase of demand

right shift of demand curve

An increase in supply causes

right shift of supply curve

price ceiling non-binding

-Set above the equilibrium price -No effect on the price or quantity sold -market will settle and operate at equilibrium

price floor binding

-Set above the equilibrium price -Surplus -Some sellers are unable to sell what they want

price floor non-binding

-Set below the equilibrium price -No effect on the price or quantity sold -market will settle and operate at equilibrium

price ceiling binding

-Set below the equilibrium price -Shortage -Sellers must ration the scarce goods

what causes the demand curve to shift

1) Changes in Price of Related Goods 2) Changes in Income 3) Changes in tastes 4) Changes in Expectations 5) Changes in the Number of Consumers

what would cause a supply curve to shift?

1. Input (prices or quantity) 2. Prices of related goods (for production) 3. Technology 4. Expectations 5. Number of Producers

WHY is demand downward sloping

1. substitution effect 2. income effect 3. law of diminishing returns

surplus

A situation in which quantity supplied is greater than quantity demanded

quantity supplied to decrease

According to the Law of Supply, if the price of a product decreases, one would expect

the demand for buns decreases

Assume hamburgers and buns are complementary goods. If the price of hamburgers increases

individual demand

How many units an individual will purchase at a given price

What does "downward" sloping with regards to a demand curve mean?

Inverse relationship between price and quantity

what is equilibrium

QUANTITY supplied = QUANTITY demanded

If the demand for pianos decreases at the same time as the supply of pianos decreases, what will happen to equilibrium price and quantity?

The change in equilibrium price will be unknown and the equilibrium quantity will decrease.

If the supply of cat food increases and the demand for cat food decreases, how will the equilibrium price and quantity be affected?

The equilibrium price will decrease but the change in the equilibrium quantity is unknown.

If coffee tables suddenly go out of style at the same time as paper becomes less expensive, what will happen to the equilibrium price and quantity of coffee table books?

The price will decrease and the change in quantity will be unknown.

quantity controls lead to

deadweight loss

What would an increase in the price of soccer balls do to the demand for soccer cleats?

decrease

a

Which of the following best fits the label of a normal good? A Designer jeans. B Used cars. C Discount jeans. D Shoe repair kits. E Generic-brand toilet paper.

1 and II

Which of the following is a determinant of supply? I. Technology II. Consumer incomes III. Cost of resources

expecting a future drop in price, demand will

decrease

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

decrease of demand

a leftward shift of the demand curve

decrease in supply

a leftward shift of the supply curve

equilibrium

an economic situation when no individual would be better off doing something different;

The simultaneous increase in demand for oil and decrease in supply of oil will cause

an increase in price, but an unknown change in quantity.

inferior good

as income increases, demand for good decreases

normal good

as income increases, demand for good increases

There are five main factors that shift the demand curve:

change of price of related goods change in income change in taste change in # of customers change in expectations

deadweight loss

created when some mutually beneficial transactions do not occur - any market not in equilibrium has deadweight loss

quota rent

difference between demand & supply price at the quota

that the price in a market moves to its

equilibrium price

An increase in demand increases both

equilibrium price and the equilibrium quantity

what are complement goods in supply

goods produced together. if the price of a complement good increases, the supply would increase ex: beef & leather

The supply and demand model illustrates

how a competitive market, one with many buyers and sellers of the same product, works.

quota

limits the quantity that is allowed to be supplied

what are substitute goods in demand

if the price for one good increases, demand for a substitute good would increase (ex: coke and Pepsi), buying one or the other

substitutes

if the price of a sub good increases, supply of the other good would decrease ex: crops

what are complement goods in demand

if the price of one good increases, demand for the complement good decreases (ex: pencils and erasers), bought together

expecting a future increase in price, demand will

increase

price ceiling

maximum price sellers are allowed to charge for a good or service ex: necessary goods, sports contracts

price floor

minimum price buyers are required to pay for a good or service. meant to create a surplus ex: minimum wage, agricultural goods for school lunches

Ceters paribus

more goods tend to be purchased at lower prices. Or that, if demand for any given product exceeds the product's supply, ceteris paribus, prices will likely rise.

does a price ceiling or floor change supply or demand in a market

no

What does "upward" sloping with regards to a supply curve mean?

price and quantity are directly proportional

A shortage in a market will occur when

quantity demanded is greater than quantity supplied.

The price of a movie ticket increases from 12 dollars to 15 dollars. We can expect

quantity demanded of movie tickets to decrease.

changes in demand,

shifts of the demand curve—a change in the quantity demanded at any given price.

When the price is below its equilibirum level, there is a

shortage

supply schedule

shows how much of a good or service producers would supply at different prices.

national real income increases by 10%-- If pied piper cell phones are a normal goof, what impact would this have on equilibrium price and quantity

since demand would increase, both equilibrium price and quantity would increase

Inefficient allocation to consumers

some people who want the good badly and are willing to pay a high price don't get it, and some who care relatively little about the good and are only willing to pay a low price do get it

law of supply

supply curves slope upward, meaning that as price increases, the quantity demanded increases.

When the price is above its equilibrium level, there is a

surplus

The law of demand says

that demand curves slope downward, meaning that as price decreases, the quantity demanded increases.

aggregate demand

the amount of goods and services in the economy that will be purchased at all possible price levels all goods across all markets

when income rises

the demand for normal goods increases and the demand for inferior goods decreases

A movement along the demand curve occurs when

the price changes and causes a change in the quantity demanded.

A movement along the supply curve occurs when

the price changes and causes a change in the quantity supplied.

competitive market is in equilibrium when

the price has moved to a level at which the quantity demanded of goods equals the quantity supplied of that good.

equilibrium price

the price of a good at which the quantity demanded of that good equals the quantity supplied of that good.

equilibrium quantity

the quantity bought and sold at the equilibrium price

The demand schedule shows

the quantity demanded at each price and is represented graphically by a demand curve.

deadweight loss

the reduction in economic surplus resulting from a market not being in competitive equilibrium

market demand

total amount of a good demanded at a certain price

five main factors that shift the supply curve:

• A change in input prices • A change in the prices of related goods and services • A change in technology • A change in expectations • A change in the number of producers