Section 3
Isabella buys a new camera for $80. She receives consumer surplus of $35 on her purchase if her willingness to pay is
$115
demand and quantity demanded
-demand is the entire curve; quantity demanded is a point on the demand curve -a change in quantity demanded is a movement along the demand curve; a change in demand is a shifting of the demand curve -if a price changes, quantity demanded will change; prices changes do not alter the demand curve for a good
price is important in a market economy because it
-eliminates imbalances between supply and demand -coordinates the choices of consumers and producers and brings them into harmony -serves as the rationing mechanism for the limited supplies of goods and services
The law of demand
-inverse relationship means that the price of a good and the quantity consumers wish to purchase move in opposite direction -as the price of a good increases, quantity demanded decreases -as the price of a good decreases, quantity demanded increases
the demand curve
-plots the quantity demanded for a corresponding price -always slopes downward and to the right -Y axis is price; x axis is quantity -horizontally, the demand curve shows how much of a particular good consumers are willing to buy at a given price; the height shows the maximum price consumers are willing to pay for an additional unit
supply and quantity supplied
-supply is the entire curve; quantity supplied is a point on the supply curve -a change in quantity supplied is a movement along the supply curve; a change in supply is a shifting of the supply curve -if a price changes, quantity supplied will change, but does not alter the supply curve
6 things that shift the demand curve
1. change in consumer income -increase in income -> increase in demand -> shift right 2. changes in the number of consumers in the market 3. changes in the price of a related good -if the price of a good's substitute increase, the demand for the good increases -if the price of a good's complement increases, demand for the good decreases 4. changes in expectations 5. demographic changes 6. changes in consumer tastes and preferences bonus: weather
4 things that change supply
1. changes in resource prices -when input prices decrease, supply increases 2. changes in technology -technological advancements reduce production costs and thereby increase supply 3. elements of nature 4. changes in taxes
how do producers convert resources into goods and services
1. organizing productive inputs and resources 2. transforming and combining these inputs into goods and services 3. selling the final product to consumers
If the United Auto Workers union can obtain a substantial wage increase for auto workers, there will be
a decrease in the supply of automobiles, which is a shift to the left of the supply curve
what does the supply curve tell us
always moves to the right and upward -horizontally, it shows how much of a good producers are willing to make and sell for a given price -vertically it shows the minimum price necessary to induce producers to supply an additional unit and the opportunity cost of producing an additional unit
an increase in supply will cause
an increase in quantity demanded
consumer surplus
area above the price and under the demand curve -as price rises, consumer surplus falls -as price falls, consumer surplus rises
producer surplus
area below the price and above the supply curve
The difference between the amount consumers would be willing to pay and the amount they actually pay for a good is called
consumer surplus
corn and soybeans are alternatives that could be grown by most farmers. if government subsidies for ethanol lead to higher corn prices, this will
decrease the supply of soybeans
when economists say the demand for a product has increased, they mean the
demand curve has shifted to the right
if consumer purchases of a good are highly sensitive to the price of a good, this is illustrated by a
demand curve that is relatively flat (more horizontal)
If the quantity of a good supplied is highly sensitive to the price of the good, economists say the supply of the good is relatively
elastic
if consumer purchases of a good are highly sensitive to the price of the good, economists say the demand for the good is relatively
elastic
an increase in the expected future price of a good will cause the current demand for the good to
increase, which is a shift to the right of the demand curve
consumer surplus
is the difference between total willingness to pay and the total amount actually paid
if price rises, what happens to the quantity demanded for a product
it decreases
if price falls, what happens to the quantity demanded for a product
it increases
if price rises what happens to quantity supplied of a product
it increases
according to the law of supply
more of a good will be offered by suppliers as the price rises
a demand curve for flowers would show the
number of flowers that will be purchased at various prices
what happens when the supply curve increases
price decreases, equilibrium quantity increases
what happens when the demand curve increases
price increases, equilibrium quantity increases
a shortage occurs whenever
price is less than equilibrium price
when economists say the quantity demanded of a product has increased, they mean the
price of the product has fallen, and consequently, consumers are buying more of it
After a hurricane in Florida knocked out the regional water supply for several days, the demand for bottled water increased sharply. In a market economy, how will this increase in demand affect the equilibrium price and quantity of bottled water?
price will increase, and quantity will increase
Liam is willing to cut lawns for a minimum of $200 a week. He is, however, paid $250 for the same service by a lawn maintenance company. This is an example of
producer surplus
according to the law of supply
producers are willing to supply larger amounts of a good as its price increases
if the demand for coffee makers increases
quantity supplied will increase
a decrease in the price of milk will
reduce the demand for orange juice, a substitute for milk
consumers buy less of a good as its price increases because
substitute goods are now relatively cheaper
if the quantity of a good supplied is highly sensitive to the price of the good, this is illustrated by a
supply curve that is relatively flat (more horizontal)
elasticity of supply curves
supply is said to be inelastic when quantity supplied is not very responsive to a price change
what is the primary determinant of price elasticity of demand
the availability of substitutes
Last year, 1,000 cases of bottled water were sold at $5; this year, 1,200 cases were sold at $7. These data could be explained by the
the demand curve shifting right with no change in supply
total value
the entire portion under the demand curve to the left of quantity demanded
law of supply
the price of a good and the quantity supplied move in the same direction -as the price of a good increases, the quantity supplied increases -as price decreases, quantity supplied decreases
Shifting the demand curve
these factors can either ase an increase in demand (where the curve moves to the right) or a decrease (curve moves left)
At a price of $5, Tyrone buys 10 units of a product; when the price increases to $6, Tyrone buys 8 units. Which of the following is correct about Tyrone's behavior?
tyrone's quantity demanded has decreased, and his demand has not changed
inelastic
when quantity demanded is not very sensitive to a change in price
elastic
when quantity demanded is quite sensitive to a change in price
equilibrium
where quantity demanded equals quantity supplied