Microeconomics midterm exam

Demand

The amount of some good or service consuers are willing and able to purchase at each price.

Quantity demanded

The total number of units of a good or service consumers are willing to purchase at a given price.

Law of demand

Keeping all other variables that affect demand constant

If the price goes ____ then quantity demanded goes ______

If price goes ______ then quantity demanded goes ______

up;down

down; up

Demand schedule- a table that shows a range of prices for a certain good or service and the quantity demanded at each price

Demand Curve- a graphic representation of the relationship between price and quantity demanded of a certain good or service, with quantity on the horizontal axis and the price on the vertical axis.

Supply

The amount of some good or service a producer is willing to supply at each price

Quantity supplied

The total number of units of a good or service producers are willing to sell at a given price

Law of supply

assuming all other variables that affect supply are held constant,

Of price goes up, then quantity supplied goes up

if price goes down, then quantity supplied goes down

Supply schedule

a table that shows the quantity supplied at a range of different prices.

Supply curve

A graphic illustration of the relationshihp between price, shown on the vertical axis, and quantity, shown on the forizontal axis

Equilibrium

the combination of price and quantity where there is no economic pressure from surpluses or shortages that would cause price or quantity to change

Equilibrium price

The price where quantity demanded is equal to quantity supplied

Equilibrium quantity

the quantity at which demanded and quantity supplied are equal for a certain price level

Surplus or excess supply

at the existing price, quantity supplied exceeds the quantity demanded

Shortage or excess demand

at the existing price, the quantity demanded exceeds the quantity supplied.

Ceteris paribus

latin phrase meaning “other things being equal”

Any given demand or supply curve is based on the ceteris paribus assumption that all else is held equal

Factors that affect demand

• income

• Changing tastes or preferences

• Changes in the composition of the population

• Price of substitute or complement changes

• Changes in expectations about future

Factors that affect supply

• Natural conditions

• Input prices

• Technology

• Government policies

Price ceiling

• Keeps a price from rising above a certain level

• A legal maximum price that one pays for some good or service

Price floor

• Keeps a price from rising above a certain level

• A legal maximum price that one pays for some good or service

Labor market

the supply and demand for labor

Law of demand in labor markets

• Higher salary or wage (price) in the labor market —> decrease in the quantity of labor demanded by employers

• lower salary or wage (price) —> increase in the quantity of labor demanded.

Law of supply labor markets

• Higher price for labor —> higher quantity of labor supplied.

• Lower price for labor —> lower quantity supplied.

Factors that can shift the demand curve for labor

• Demand for Output

• Education and Training

• Technology

• Number of Companies

• Government Regulations

• Price and Availability of Other Inputs

Factors that can shift the supply curve of labor

• Number of Workers

• Required Education

• Government Policies

Minimum wage

A price floor that makes it illegal for an employer to pay employees less than a certain hourly rate

Living wage

The amount a full-time worker would need to make to afford the essentials of life: food, clothing, shelter, and healthcare

Demand and supply models

• Second fundamental diagram for this course (the first was the budget contraint/opportunity set model)

• Demand and supply curves explain existing levels of, and how economic events will cause changes in, prices and quantities

negative externality

a situation where a third party, outside the transaction suffers from a market transaction by others.

postitive externality

a situation where a third party, outside the transaction, benefits from a market transaction by others

additional external costs

additional costs incurred by third parties outside the production process when a unit of output is produced

social costs

costs that include both the private costs incurred by firms and also additional costs incurred by third parties outside the production process

Market failure

when the market, on its own, does not allocate resources efficiently in a way that balances social costs and benefits; externalities are one example of a market failure

command-and control regulation

laws that specify allowable quantities of pollution and that also may detail which pollution-control technologies one must use

property rights

the legal rights of ownership on which others are not allowed to infringe without paying compensation

private benefits

the benefits a person who consumes a good or service receives, or a new product’s benefits or processes that a company invents that the company captures.

Social benefits

the value of all the positive externalities of the new idea or product (whether enjoyed by other companies or society as a whole), as well as the private benefits the firm that developed the new technology

private rates of return

the estimated rates of return go primarily to an individual; for example, earning interest on a savings account

social rate of return

when the estimated rates of return go primarily to society.

intellectual property rights: the body of law including patents, trademarks, copyrights, and trade secret law that proct the right of inventors to produce and sell their inventions

: the body of law including patents, trademarks, copyrights, and trade secret law that proct the right of inventors to produce and sell their inventions

public good

good that is nonexcludable and non-rival, and is difficult for market producers to sell to individual consumers

Nonexcludable

it is costly or impossible to exclude someone from using the good, and thus hard to charge for it.

Non-rival

even when one person uses the public good, another can also use it

Elasticity

is an economics concept that measures the responsiveness of variable to changes in another variable

price elasticity

is the ratio between the percentage change in the quntity demanded or supplied, and the corresponding percent change in price

price elasticity of demand

precentage change in the quantity demanded of a good or service divided the percentage

price elasticity of supply

the percentage change in the quantity supplied divided by the percentage change in price

infinite elasticity or perfect elasticity

either the quantity demanded or supplied changes by an infinite amount in response to any change in price at all

zero elasticity or perfect inelasticity

a percentage change in price, no matter how large, results in zero change in quantity

constant unitary elasticity

in either a supply or demand curve, occurs when a price change of one percent results in a quantity change of one percent

tax incidence

manner in which the tax burden is divided between buyers and sellers