Econ 201 Midterm 2- Waddell: U of Oregon

Supply Curve

A curve that shows the relationship between the price of a product and the quantity of the product supplied. Positive sloping.

Six things that shift supply curve:

1. Change in resources

2. change in technology

3. changes in taxes and subsidies

4. change in prices of other goods

5. change in producer expectation

6. change in number of suppliers

Consumer Surplus

the difference between the total amount that consumers are willing and able to pay for a good or service (indicated by the demand curve) and the total amount that they actually do pay (i.e. the market price).

Producer Surplus

The difference between the price received and the marginal cost of producing the good. It is the area above the supply curve and under the price

Market Efficiency

when a market is capable of producing output high enough to meet consumer demand

Price Controls

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

Price Ceiling

A legal maximum on the price at which a good can be sold

Price Floor

A legal minimum on the price at which a good can be sold

When is a price ceiling effective?

when the equilibrium price is above the price ceiling

When is a price floor effective?

when Price floor is greater than price equilibrium PF>PE

Do price ceilings cause shortages or surplus in the market?

Surplus

Do price floors cause shortages or surplus in the market?

Shortage

What happens to the supply curve when we introduce a sales tax?

Shifts left increasing price

What happens to equilibrium price and quantity after a sales tax

equilibrium price and quantity will increase

Inferior goods

Goods for which demand tends to fall when income rises.

Normal goods

A good for which higher income increases demand

Elasticity

A measure of how much one economic variable responds to changes in another economic variable.

positive income elasticity

Normal good

negative income elasticity

inferior good

cross-price elasticity

A measure of responsiveness of quantity demanded of good X to a change in the price of good Y; Negative sign will imply complements and a positive sign implies substitutes.

negative cross price elasticity

goods will be compliments

positive cross price elasticity

substitute goods

What are factors of production?

Capital, land, labor

Absolute advantage

the ability to produce a good using fewer inputs than another producer

Can a country have absolute advantage in every good?

Yes

Comparative advantage

The ability of a country to produce a good at a lower cost than another country can.

Specialization

Goods and services are produced in better quality, quantity and speed when people focus on producing a few things instead of making everything they want by themselves.

Production possibility frontiers(PPF)

A graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good.

Where does efficient production occur?

on the PPF not below it

marginal cost

Extra cost of producing one additional unit of production.

deadweight loss

The fall in total surplus that results from a market distortion, such as a tax.