2nd ECON quiz

Movement along the demand curve

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

increase in demand

a rightward shift of the demand curve

Changes in tastes

When tastes change in favor of a good, more people want to buy it at any given price, so the demand curve shifts to the right. When tastes change against a good, fewer people want to buy it at any given price, so the demand curve shifts to the left 

Changes in the prices of related goods or services 

 a rise in the price of the alternative good induces some consumers to purchase the original good instead of it, shifting the demand for the original good to the right. Likewise when the price of the alternative good falls, some consumers switch from the original good to the alternative, shifting the demand curve for the original good to the left 

Substitutes

two goods are substitutes if a rise in the price of one of the goods leads to an increase in the demand for the other good 

Complements

 two goods are complements if a rise in the price of one of the goods leads to a decrease in the demand for the other good 

> This means that if the price of cookies falls, we should see a rightward shift in the demand curve for milk, as people consume more cookies and more milk 

Changes in Income

When individuals have more income, they are normally more likely to purchase a good or service at any given price. 

A rise in consumer incomes most likely means the demand curves will shift rightward 

Normal goods

when a rise in income increases the demand for a good - the normal it is a normal good 

Inferior goods

 when a rise in income decreases the demand for a good it is an inferior good

Inferior goods are normally the “less desired” good than the more expensive alternatives 

When they can, people switch from inferior goods to the more expensive, preferred good

Changes in the Number of Consumers(Buyers) 

>population growth → more consumers for the good 

Changes in Expectations

When consumers have some choice about when to make a purchase, current demand for a good or service is often affected by expectations about its future price. 

• Such as waiting for seasonal sales 

Expectations of a future rise in price are likely to cause an increase in demand today, vice versa

Individual Demand curve

illustrates the relationship between the quantity demanded and price for an individual consumer 

Quantity supplied

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

The quantity of a good that consumers want to buy depends on the price they have to pay, the quantity that producers are willing to produce and sell depends on the price they are offered

Supply schedule

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

Supply curve

shows the relationship between the quantity supplies and the price 

Higher prices lead to higher quantities supplied 

Law of Supply

 says that other things being equal, the price and quantity supplied of a good are positively related 

Change in supply

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

Movement along the supply curve

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

Input

is a good or service that is used to produce another good or service 

An example for inputs would be vanilla beans, cream and sugar to produce vanilla ice cream 

> an increase in the price of an input makes the production of the final good more costly for those who produce and sell it.

Changes in the Prices of Related Goods or Services 

> when a producer sells several products, the quantity of any one food it is willing to supply at any given price depends on the prices of its other produced goods 

• An oil refiner will supply less gasoline at any given price when the price of heating oils increases, shifting the supply curve for gasoline to the left 

• But it will go back to supplying gas when the price of heating oil falls 

> This means that gasoline and other co-produced oil products are substitutes in production for refiners 

Changes in Producer Expectations 

> Changes in consumer expectations can shift the demand curve, they can also shift the supply curve. 

• Storage is normally part of producers’ business strategy

• By withholding certain products,  they can increase the demand for these product when a sale comes around

• An increase in the anticipated future price of a good or service reduces supply today, a leftward shift of the supply curve

Changes in the Number of Producers 

 a market with many producers will supply a large quantity of a food then a market with a single producer, all other things equal

Changes in Technology 

> “technology” are the number of methods people can use to turn inputs into useful goods and services 

• Improvements in technology enable producers to spend less on inputs yet still produce the same output. 

• When a better technology becomes available, reducing the cost of production, supply increases and the supply curve shifts to the right 

Individual supply curve

illustrates the relationship between quantity supplied and price for an individual producer 

Equilibrium

 no individual would be better off doing something different 

The concept of equilibrium helps us understand the price at which a good or service is bought and sold as well as the quantity transacted of the good or service

equilibrium price

a competitive market is in equilibrium when the price has moved to a level at which the quantity of a good demanded equals the quantity of that good supplied. The price at which this takes place is the equilibrium price, also referred to as the market clearing price. 

Equilibrium quantity

the quantity of the good bought and sold at that price

Surplus

a good or service when the quantity supplied exceeds the quantity demanded. Surpluses occur when the price is above its equilibrium level

Shortage

 a good or service when the quantity demanded exceeds the quantity supplied. Shortages occur when the price below its equilibrium level 

Price controls

 are legal restrictions on how high or low a market price may go. They can take two forms: 

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

 people who want the good badly and are willing to pay a high price don’t get it, and those who care relatively little about the good and 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 caused by price ceilings

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 market

a market in which goods or services are bough and sold illegally-either because it is illegal to sell them at all or because the prices charged are legally prohibited by a price ceiling

minimum wage

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

Inefficient allocation of sales among sellers

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

Efficiently low quantity

a price floor rises the price of a good to consumers, it reduces the quantity of that good demanded; because sellers can’t sell more units of a good than buyers are willing to buy, a price floor reduces the quantity of a good bought and sold below the market equilibrium quantity

Inefficiently high quantity

sellers offer high quality goods at a high price, even though buyers would prefer a lower quality at a lower price

illegal activity

price ceilings and price floors provide incentives for illegal activity, such as working off books

quantity control/quota

an upper limit on the quantity of some good that can be bought or sold

license

gives its owner the right to supply a good or service

demand price

of a given quantity is the price at which consumers will demand that quantity

supply price

of a given quantity is the price at which producers will supply that quantity

wedge

a quantity control or quota drives a wedge between the demand price and the supply price of a good; that is the price paid by buyers ends up being higher than that received by sellers. The difference between the demand supply price at the quota amount is the quota rent

quota rent

the earnings that accrue to the license-holder from ownership of the right to the market price of the license when the licenses are traded

dead weight loss

is the value of forgone mutually beneficial transactions