Micro-Economics - Study Questions #4

Define relative price or px/py

the price of a product compared to another product.

Review the terms in which nominal income (I) is measured

Current money terms / (the goods and services you can buy with nominal income)

Define quantity demanded

The number of units of a good that consumers are willing and can afford to buy over a specified period time

What are the determinants of quantity demanded?

1. Price (-)
2. Population size (+) all else held constant direct relationship
Increase in pop, line shifts to the right
3. Consumer income (I - nominal income (current money terms)) (+)
4. Tastes and preferences (+)
5. Price and availability of
Substitutes (+)
Complements (-) (price of a good and quantity demanded of a compliment)
Goods consumed together

Define a market demand curve

A graphical depiction of a demanding schedule. It shows how the quantity demanded of some product will change as the price of that product changes during a specified period of time, holding all other determinants of quantity demanded constantly.
Shows the relationship between price and the quantity

Define a market supply curve

The relationship between price and the quantity supplied holding all other determinants of quantity demanded constant

The supply curve will shift if .....

if one of the determinants of quantity supplied, previously held constant changes, will cause a

What is the situation in a particular market if the price is below equilibrium price?

Shortage

What is the situation in a particular market if the price is above equilibrium price?

Surplus

Principle of increasing cost (POIC)

Quant supplied increases so does the opportunity cost of producing each additional unit so they must be incentivised to cover the cost

Principle of increasing cost (POIC)
causes a _________ slope

a positive slope

Define a price ceiling

A maximum that the price charged for a commodity cannot legally exceed

Define a price floor

Legal minimum below which the price charged for a commodity is not permitted to fall