Microeconomics: Price Mechanism, Demand, and Supply

Flashcards based on lecture notes regarding microeconomic principles including the price mechanism, laws of demand and supply, equilibrium, and community surplus.

The __________ is the interaction between demand and supply in a free market to determine the price of products as well as the costs of the factors of production.

Price Mechanism

The law of demand states that, __________, as prices rise, the quantity demanded decreases.

ceteris paribus

According to the Demand Schedule, when the price is $0.12$, the quantity demanded is __________.

$$1200$$

The law of __________ states that the utility gained from each additional unit of a good consumer decreases.

diminishing marginal utility

In the context of the law of demand, the __________ effect occurs when a fall in price increases the consumers' "real income."

Income

The __________ effect happens when a product becomes more attractive than its competitors due to a price fall.

Substitution

The law of __________ states that as the price of a product increases, there will be an increase in the supply of the product.

supply

According to the Supply Schedule, at a price of $0.20$, the quantity supplied is __________.

$$1000$$

The law of __________ explains that by employing additional variable factors of production, the marginal returns will eventually decline.

diminishing marginal returns

Firms consider the __________ of production, which is the cost of producing an additional unit of output, when deciding to supply.

marginal cost

The __________ price and quantity occur where buyers want the exact quantity of goods the sellers want to sell.

Equilibrium

Based on the potato market data, the equilibrium price is __________ because both demand and supply are at $350$.

$$60$$

A state of __________ exists when it is impossible to make someone better off without making someone else worse off.

Pareto optimality

When a market is Pareto optimal, it is said to be __________, which occurs when community surplus is maximised.

socially efficient

Community surplus is the welfare of society and consists of __________ surplus and __________ surplus.

consumer, producer

On a community surplus diagram, the supply curve (S) is labeled as __________ and the demand curve (D) is labeled as __________.

Marginal Social Cost, Marginal Social Benefit

__________ surplus is the extra satisfaction gained by consumers from paying a price lower than what they were prepared to pay.

Consumer

A price change causes an extension or contraction in quantity, whereas non-price determinants cause the entire curve to __________.

shift

Changes in consumers' tastes, income levels, and the prices of __________ or __________ are non-price determinants of demand.

substitutes, complements

Government interventions, such as levels of __________ or __________, are non-price determinants that can shift the supply curve.

taxation, subsidies