supply and demand quiz ap micro

competitive market

one where there are many buyers and sellers of the same good or service

demand schedule

a table that shows how much of a good or service consumers will want to buy at different prices

quantity demanded

the actual amount of a goo or service consumers are willing and able to buy at some specific price

demand curve

graphical representation of a demand schedule; shows the relationship between quantity demanded and price

law of demand

the higher the price is for a good, the less quantity people demand of it

movement along the demand curve

a change in the quantity demanded of a good that is the result of a change in the good’s price

five factors that cause shifts in the demand curve

tastes/preferences, price of related goods, income, number of consumers, expectations

quantity supplied

the actual amount of a good or service people are willing to sell at some specific price

supply schedule

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

supply curve

shows the relationship between quantity supplied and the price

law of supply

the price and quantity supplied of a good are positively related

change in supply

a shift in the supply curve, which changes the quantity supplied at any given price

movement along the supply curve

a change in the quantity supplied of a good arising from a change in the good’s price

five factors that cause shifts in the supply curve

input prices, prices of related goods, producer expectations, number of producers, technology

individual supply curve

relationship between quantity supplied and price for an individual producer

equilibrium

when no individual would be better off doing something different

equilibrium price

the price that matches the quantity supplied and the quantity demanded

equilibrium quantity

the quantity bought and sold at the equilibrium price

surplus

when the quantity supplied exceeds the quantity demanded; occurs when the price is below equilibrium

shortage

when the quantity demanded exceeds the quantity supplied; occurs when the price is below its equilibrium level

price controls

legal restrictions on how high or low a market price may go

price ceiling

a maximum price sellers are allowed to charge for a good or service

price floor

a minimum price buyers are required to pay for a good or service

inefficient allocation to consumers

often a result of price ceilings; people who want the good badly are willing to pay a high price but don’t get it, and those who care relatively little about the good are only willing to pay a relatively low price do get it

wasted resources

people expend money, effort, and time to cope with the shortages cuased by the price ceiling

inefficiently low quality

sellers offer low quality goods at a low price even though buyers would prefer a higher quality at a higher price

black markets

a market in which goods or services are bought and sold illegally - either because it’s illegal to sell them or because the prices charged are legally prohibited by a price ceiling

minimum wage

a legal floor on the hourly wage rate paid for a worker’s labor

inefficient allocation of sales among sellers

those who would be willing to sell the good at the lowest price are not always those who manage to sell it

inefficiently high quality

sellers offer high-quality goods at a higher price, even though buys would prefer a lower quality at a low price

substitution effect

the change in the quantity of a good demanded as the consumer substitutes the good that has become relatively cheaper for the good that has become relatively more expensive

income effect

a change in the price of a good is the change in the quantity of that good demanded that results from a change in the consumer’s purchasing power when the price of good changes

normal goods

goods for which demand decreases when income falls

inferior goods

goods for which demand increases when income falls

price elasticity of demand

the ratio of the percent change in the quantity demanded to the percent change in the price as we move along the demand curve

perfectly inelastic

when the quantity demanded does not respond at all to changes in the price (vertical line)

perfectly elastic

when any price increase will cause the quantity demanded to drop to zero

relatively elastic

if the price elasticity of demand is greater than 1

relatively inelastic

if the price elasticity of demand is less than 1

unit elastic

if the price elasticity of demand is exactly 1

total revenue

the total value of sales of a good or service (price x quantity)

cross price elasticity of demand

measures the effect of the change in one good’s price on the quantity demanded of the other good

positive cross price elasticity

when 2 goods are substitutes, their cross price elasticity is:

negative cross price elasticity

when 2 goods are complements, their cross price elasticity:

willingness to pay

the maximum price at which he or she would buy that good

individual consumer surplus

the net gain to an individual buyer from the purchase of a good (difference between the buyer’s willingness to pay and the price paid)

total consumer surplus

the sum of the individual consumer surpluses of all the buyers of a good in a market

individual producer surplus

the net gain to an individual seller from selling a good (equal to the difference between the price received and the seller’s cost)

total producer surplus

a market is the sum of the individual producer surpluses of all the sellers of a good in a market

excise tax

a tax on the sales of a particular good or service

deadweight loss

the decrease in total surplus resulting from the tax, minus the tax revenues generated

lump sum tax

a tax of a fixed amount paid by all taxpayers