Term
|
Definition
lower price, greater quantity demanded
increase - shirt curve to right
decrease - shift curve to left |
|
|
Term
|
Definition
increase in income, increases the demand for the good
ex) cars, electronics, restaurant meals |
|
|
Term
|
Definition
increase in income,decrease demand. Things that you buy because you don't have a lot of money.
ex)ramen noodles |
|
|
Term
|
Definition
decrease price of good leads to decrease in demand for other good. curve shifts down and left
ex) decrease price of Pepsi will decrease the demand for Coke. |
|
|
Term
|
Definition
| Things that go together. Decrease of price of good leads to increase in demand for other good. Greater consumption of Good A encourages greater consumption of Good B. (shift up and right) |
|
|
Term
|
Definition
| decrease in costs increases supply, shifts supply curve down and to right. Increase in cost decreases supply, shifting supply curve up and to the left. |
|
|
Term
|
Definition
| If suppliers expect the price to increase in the future we will have an incentive to sell less today so they can store goods for future sale. (shift to left) |
|
|
Term
|
Definition
| higher the price, greater quantity supplied. As price of good increases, suppliers attempt to max profits by increasing quantity sold. |
|
|
Term
|
Definition
| producer's gain from exchange, or the difference between the market price and min price at which producer would be willing to sell a quantity. |
|
|
Term
|
Definition
| measured by the area above the supply curve and below the price |
|
|
Term
|
Definition
| consumer's gain from exchange, or difference between max price a costumer is willing to pay and the market price. |
|
|
Term
|
Definition
| adding up consumer surplus for each consumer and for each unit. Measured by the area beneath the demand curve and above the price. |
|
|
Term
|
Definition
| quantity demanded =quantity supplied. Prices and supply shift according to competition. |
|
|
Term
|
Definition
| quantity supplied < quantity demanded - suppliers want to sell more than what is demanded. Price above equilibrium price. Companies want to decrease prices so they can feel more than competitors. |
|
|
Term
|
Definition
quantity demanded = quantity supplied - ultimate goal
sellers compete with sellers
buyers compete with buyers |
|
|
Term
|
Definition
| the price at which the buyer is willing to pay for and suppliers will be willing to sell for |
|
|
Term
| Unexploited gains from trade |
|
Definition
Quantity < Equilibrium Quantity
= consumer surplus + producer surplus
- good for buyers not for sellers
ex) buyers willing to buy at $57 and sellers are willing to sell at $15, so _____ would be $42 |
|
|
Term
| Elasticity of demand(supply) |
|
Definition
| change in quantity demanded(supply)/change in price. (More responsive, more elastic. So the bigger the difference in the quantity demand, the more elastic) |
|
|
Term
| Percentage change in price |
|
Definition
| change in price/average price |
|
|
Term
Elastic
Inelastic
Unit Elastic |
|
Definition
[E>1]
[E<1]
[E=1]
always take absolute value |
|
|
Term
|
Definition
not having a lot of substitutes = inelastic demand
Demand for luxuries more elastic than demand for necessities. |
|
|
Term
|
Definition
|
|
Term
|
Definition
| revenues go up when price goes up (because people don't stop buying things even when price is increased. |
|
|
Term
|
Definition
| revenues go down when the price go up (people buy less when the prices are increased). |
|
|
Term
|
Definition
change in price is exactly matched by an equal and
opposite percentage change in quantity so revenues stay the same |
|
|
Term
| Cross-Price Elasticity of Demand: |
|
Definition
| Compares two different things and how responsive one product’s quantity is to the price of another. Measures how responsive a product’s quantity demanded is to ANOTHER product’s change in price. |
|
|
Term
|
Definition
| Max price allowed by law that creates shortages, reductions in product quality, a loss of gains from trade, misallocation of resources |
|
|
Term
| Reductions in product quality |
|
Definition
| Sellers have more customers than they have goods and sellers can’t raise the prices like they normally would |
|
|
Term
|
Definition
If demanders are willing to pay $3.00 for something while suppliers are willing to sell for
$2.00, there is a $1.00 potential gains from trade split between them. But since there is a price ceiling, it is illegal to do so, so that $1.00 becomes known as deadweight loss |
|
|
Term
| Misallocation of resources |
|
Definition
Usually, high demand increases prices. But since prices cannot be increased, things are
misallocated (not used where they are needed most) because there is no incentive for
suppliers.things are allocated at RANDOM so the high valued uses are just as likely as low valued uses to be satisfied. |
|
|
Term
|
Definition
| price ceiling on rental housing that creates shortages, reduction in quality, wasteful lines, increase cost of search, cause a loss of gains for trade (landlords have more customers than apartments so they can pick and choose choose among prospective renters), Misallocation of resources (people with a high willingness to pay can’t buy as many houses as they want and others with a low willingness to pay consume more housing than they would want to purchase) |
|
|
Term
|
Definition
| For price ceiling to be truly effective, price ceiling should be lower than equilibrium price. |
|
|
Term
|
Definition
| If the price ceiling is truly effective, the quantity traded will decrease and in general goods will be randomly allocated to consumers. So the price that producers are willing to sell at is much lower (because the quantity sold is LOWER) than what consumers are willing to buy. This is because the buyers with the highest valued uses can’t outbid other buyers, so goods will flow to ANY buyer willing to pay more than the controlled price. |
|
|
Term
|
Definition
| A minimum price allowed by law that creates surpluses, deadweight loss, wasteful increases in quality, misallocation of resources. |
|
|
Term
|
Definition
| price paid by buyers - price received by sellers |
|
|
Term
|
Definition
| The loss of the total consumer and producer surplus that could have been gained from the trade off. Larger when the demand curve is more elastic. |
|
|
Term
|
Definition
|
|
Term
|
Definition
| Cost of producing a given quantity |
|
|
Term
|
Definition
| cost that does not vary with output |
|
|
Term
|
Definition
| cost that does vary with output |
|
|
Term
|
Definition
| change in total revenue from selling an additional unit |
|
|
Term
|
Definition
| change in total cost from producing an additional unit |
|
|
Term
|
Definition
| what you make. (P-ATC) x Q |
|
|
Term
|
Definition
| total cost of production are minimized because MC1 = MC2. Increases wealth by letting the U.S buy goods from lowest cost producers. |
|
|
Term
|
Definition
| power to raise price above marginal cost without fear that other firms will enter the market (monopoly has this) |
|
|
Term
|
Definition
| exists when a single firm can supply the entire market at a lower cost than two or more firms |
|
|
Term
|
Definition
| factors that increase the cost to new firms of entering an industry. One firm can own an input that is difficult to duplicate (like Saudi Arabia and oil) |
|
|
Term
|
Definition
| taking advantage of price differences for the same good in different markets by buying low in one market and selling high in another market (Combvir is cheaper in Africa than Europe) |
|
|
Term
| Perfect price discrimination |
|
Definition
| each customer is charged his or her maximum willingness to pay |
|
|
Term
|
Definition
requiring that products be bought together in a bundle or package. Explained as a way to reduce costs
ex)Nike pair of shoes or Microsoft Office |
|
|
Term
|
Definition
one good called the base good is tied to another good called the variable good
ex) hp printer and ink |
|
|
Term
|
Definition
| he spends money on the cute puppy and he made other people’s lives happier when he would go to the street and everyone would pet them. |
|
|
Term
|
Definition
| the dog barking so this causes annoyance for the neighbors |
|
|
Term
|
Definition
External costs (negative) or external benefits (positive).
External market happening because not all of the costs/benefits in the market have been accounted for and the problem is that the market will produce too much bad stuff (like pollution or barking dogs) or not going to produce enough stuff (like good vaccines or puppies). Usually the benefits and costs in a transaction only involve the trade parties, but sometimes they could leak to bystanders. |
|
|
Term
|
Definition
1. The action of one economic agent affects the welfare of other agents
2. No change in compensation or the change in welfare |
|
|
Term
|
Definition
| Professor Vazquez has a dog that barks a lot and affects the welfare of neighbors and he’s not compensating his neighbors |
|
|
Term
| Externalities outcome is always inefficient |
|
Definition
| Not socially optimal. This means there is too little of the positive externalities and there is too much of the negative externalities. |
|
|
Term
|
Definition
| price paid by the consumer |
|
|
Term
|
Definition
| cost paid by people other than the consumer or the producer trading in the market. paid by bystanders to the transaction |
|
|
Term
|
Definition
| cost to everyone (private + external) |
|
|
Term
| Externalities significant |
|
Definition
| market works less well and govt. action can increase surplus |
|
|
