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Microeconomics Chp 3

TermDefinition
Markets Interaction between buyers and sellers. Price is discovered in the interactions of buyers and sellers
Demand consumers' willingness and ability to purchase goods or services Demand schedule (table) Demand curve (graph)
Law of Demand Other things equal Price↓, Quantity ↑ Price ↑, Quantity ↓
Explanations for Law of Demand -Price acts as an obstacle to buyers -Law of diminishing marginal utility -Income effect and substitution effect
Demand Curve Down, Right Changes in demand can cause the curve to move
Determinants of Demand Change in: -consumer tastes and preferences -the number of buyers -income -prices of related goods -consumer expectations
Effect of change in income (Det of Demand) Income increases= Normal goods Income decreases= Inferior goods
Change in prices of related goods (Det of Demand) -Substitute good -Complementary good
Change in consumer expectations (Det of Demand) -Future prices (expected sales/discounts) -Future income
Supply the quantity of a product available in the market for sale at a specified price and time Supply schedule (table) Supply curve (graph)
Law of Supply other things equal -price is an incentive to producers Price ↑, Quantity ↑ Price ↓, Quantity ↓ Increase in price is motivation to supply more of that product (and vice versa)
Supply Curve Up, Right
Determinants of Supply A change in: - resource prices - technology - taxes and subsidies - prices of other goods - producer expectations - the number of sellers
Market Equilibrium Equilibrium occurs where the demand curve and supply curve intersect. -Equilibrium price and equilibrium quantity. -Surplus and shortage. -Rationing function of prices. -Efficient allocation
Efficient Allocation -Productive efficiency -Allocative efficiency
Productive efficiency -Producing goods in the least costly way -Using the best technology -Using the right mix of resources (Necessary, but not enough)
Allocative efficiency -Producing the right mix of goods -The combination of goods most highly valued by society
Rationing Function of Prices The ability of the competitive forces of demand and supply to establish a price at which selling and buying decisions are consistent.
Changes in Demand and Equilibrium Demand increase= Price ↑, Quantity ↑ Demand decrease= Price ↓, Quantity ↓
Changes in Supply and Equilibrium (Price/Quantity) Supply increase= Price ↓, Quantity ↑ Supply decrease= Price ↑, Quantity ↓
Government Set Prices: Price Ceiling Price ceiling: a government-imposed maximum price that can be charged for a good or service -Set below equilibrium price -Rationing problem -Black markets An example is rent control.
Government Set Prices: Price Floor Price floor: a government set minimum price that must be charge for a good or service -Prices are set above the market price. -Chronic surpluses. An example is the minimum wage law.
Pandemic Prices -store shelves were empty -consumers rushed to stock up on certain goods, causing shortages -retail prices remained largely fixed, which led to shortages due to demand greatly exceeding supply
Pandemic economics also resulted in: -A crash in stock prices -A spike in the price of used cars -Increased demand for housing in suburban and rural areas -Widespread labor shortages
Created by: Phillies55
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