Microeconomics ch 2,3,4

demand

a consumer's willingness to buy goods at different prices

supply

the total amount of a specific good or service that is available to consumers

law of demand

The tendency for quantity demanded to be higher when the price is lower.

law of supply

The tendency for the quantity supplied to be higher when the price is higher.

What does demand show?

Diminishing Marginal Benefit

What does supply show?

Diminishing Marginal product/Increasing marginal cost

What is diminishing MB?

Each additional item yields a smaller marginal benefit than the previous item.

What is diminishing marginal product (MP)?

The marginal product of an input declines as you use more of that input.

What is increasing MC?

as a company produces more of a good or service, the cost of producing each additional unit rises

How is MC related to the shapes of demand or supply?

Increasing marginal cost (MC) is a key reason why supply curves slope upward in most production contexts. Marginal cost is the extra cost of producing one more unit of output. When MC rises as output increases, it means each additional unit becomes more expensive to produce

Quantity demanded vs demand

Demand simply denotes the willingness and a person’s ability to purchase. As against this quantity demanded represents the amount of an economic good or service desired by consumers at a fixed price.

Quantity supplied vs supply

Supply represents the entire relationship between price and quantity offered, while quantity supplied is the specific amount producers are willing to sell at a particular price.

What causes a move along the curve?

It is caused by price of the original goods change, law of demand/supply

What causes a shift of the curve?

It is caused by non-price of the original goods factor change: PICTEN/SPENT

How to get individual demand/supply curve?

Make a schedule, plot it on a graph  and connect points to form a downward sloping line (demand) or upward sloping line (supply)

What are rational rules for buyers/sellers?

Buy more of an item if the marginal benefit of one more is greater than (or equal to) the price. Sell one more item if the marginal revenue is greater than (or equal to) marginal cost.

Normal goods vs inferior goods?

Normal good - good for which higher income causes an increase in demand.

Inferior good - A good for which higher income causes a decrease in demand.

Substitutes vs Complements?

Substitutes - Goods that replace each other. Your demand for a good will increase if the price of a substitute good rises, and it will fall if the price of a substitute good falls.

Complements - Goods that go together. Your demand for a good will decrease if the price of a complementary good rises.

What is included in marginal cost?

Variable cost, not fixed costs

What are features of a perfect competition market?

Many buyers/sellers, identical goods, free entry/exit, individual buyer/seller being price taker

What is market?

A setting bringing together potential buyers and sellers.

Surplus

When the quantity demanded is less than the quantity supplied.

Shortage

When the quantity demanded exceeds the quantity supplied.

Quantity transacted

the actual amount of goods or services that are bought and sold in a market at a given price