Econ Chapter 6 Concepts

Market Exchange answers…

what to produce, how to produce, and for whom to produce it

market equilibrium

when quanity cosnumers are willing and able to buy = quanity producers are willing to sell

surplus

quanity supplied is more than demanded, price too high

surplus pressure on price

downward pressure

shortage

quanity demanded exceeds quanity supplied, price too low

shortage pressure on price

upward pressure

transaction cost

costs of time and information needed to carry out market exchange

how do markets reduce transaction costs?

make is easier for buyers and sellers to find each other

what do markets prices show?

the scarcity of an item

equilibrium price

price at which quantity demanded = quantity supplied

• independent decisions of buyers and sellers make the price reach equillibrium

clearing price

market is clear at a certain price and quanity

equilibrium quanity

amount bought and sold at equilibrium price

increase in demand

consumers are willing to buy more of a product

demand curve

graph showing how much consumers will buy at different prices

increase in demand

consumers are able to buy more of a product at each price

what causes the demand curve to shift?

income, change in prices and expectations, population, and tastes and prefrences

decrease in demand

consumers are able to buy less of a product at each price

demand increases the curve shifts……..

right

demand decreases the curve shifts…..

left

what shifts the supply curve?

reduction in the cost of a resource, decline in the price of another item the resources make, new tech, increase in # of businesses

supply curve

graph of how much producers sell at different prices

increase in supply

producers are able to sell more of the product

decrease in supply

producers are able to sell less of the product

supply curve shifts right…

price lowers and amount increases

supply curve shifts left…

price increases and quantity decreases

what are the 2 ways to distinguish market performance?

productive and allocative efficiency

productive efficiency

making products at the lowest cost

allocative efficiency

making products consumers want most

(also happens when marginal benefit = marginal cost)

disequilibrium

quanity demanded does not equal quanity supplied

• temporary bc buyer and sellers plans don’t align

price floor

minimum legal price, could result in a shortage

price ceiling

maximum legal price, could result in a surplus

consumer surplus

difference between what consumers are willing to pay and what they actually pay

Medicaid (free medical care)

issue: beneficiaries consume so much the marginal benefit is zero

behavioral economics

borrows insight from psychology to help explain economic choices

bounded rationality

people have limits on the info they can understand and use when making decisions

limited willpower

limited self discipline in following through wit decisions that help ones self interest

neuroeconomics

study of how brain activity relates to economic decisions