microeconomics supply, demand, equillibrium, surplus SL

invisible hand of the market

The market mechanism working through prices

signaling function

changes in price act as signals, communicating information to market participants

incentive function

changes in price creates incentives, motivating market participants to respond to the information

rationing function

the market-determined price will guarantee that the buyers who are willing and able to pay that price are the ones who will end up with that good

demand curve as marginal benefit curve

extra benefit that you get from each additional unit of something you buy

supply curve as marginal cost curve

extra cost of producing one more unit of output

consumer surplus

the area under the demand curve and above the price paid by the consumer up to the quanity purchased

producer surplus

the price received by firms for selling their good minus the lowest price they are willing to produce the goods

welfare

the amount of consumer and producer surplus

supply

the quantity of a good or service that producers are willing and able to offer at various prices during a specific time period, ct

law of supply

there is a direct relationship between price and quantity - as the price of goods rises, the quantity supplied will usually rise, ct

supply shifters

cost of fop, technology, no of sellers, future expectations, price of related goods (joint, competitive supply), government intervention

demand

• The ability and willingness to purchase a quantity of a good or service at a certain price, ceteris paribus

law of demand

inverse relationship between price and quantity demanded,The demand of an individual consumer indicates the various quantities of a good or service the consumer is willing and able to buy at different possible prices during a particular time period, ct

shifters of demand

income (normal, inferior goods), related goods (complements, substitutes), tastes and preference, no of consumers, future expectations

a free good

is a good for which the quantity supplied is greater than the quantity demanded when the price is zero. Supply is so large relative to demand  that there is excess quantity supplied even at zero price

economic good

a good for which the quantity supplied is smaller than the quantity demanded when the price is zero.