Questions and Answers
What is a table showing the relationship between the price of a good and the amount that buyers are willing and able to purchase at various prices?
demand schedule
What is the amount of a good that buyers are willing and able to purchase at a given price?
quantity demanded
What is the claim that, with other things being equal, the quantity demanded of a good falls when the price of that good rises?
law of demand
What is a graphical object showing the relationship between the price of a good and the amount that buyers are willing and able to purchase at various prices?
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If Kyoko's boss is interested in a graphical presentation of the relationship between the price and quantity of televisions demanded, you would advise your coworker to construct _____ using the data provided. However, if Kyoko's boss is more interested in the detailed numbers, you would advise your coworker that a ______ would be more appropriate.
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From the previous graph, you can tell that Valerie is willing to pay _____ for her 8th slice of pizza each week. Since she has to pay only $3.00 per slice, the consumer surplus she gains is ______.
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If the price of pizza falls to $2.25 per slice, what consumer surplus would Valerie receive from the 8th slice of pizza?
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A good without any close substitutes is likely to have relatively ________ demand.
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If several goods are priced the same, which one is likely to have the least elastic demand?
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Organize the goods by their elasticity of demand:
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If the price of gasoline is relatively high for a long time, the demand for gasoline is ______ elastic in the short run than in the long run.
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Match the following definitions with their terms:
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Because you understand the law of supply, the correct graphical representation of the supply for CDs must be _______. Moreover, the quantity supplied at a price of $10 per CD is ______.
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If the selling price of necklaces increases from $12 to $24, then Clancy's opportunity cost of making bracelets ______ and making bracelets is now ______ profitable than making necklaces.
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What is likely to happen to the supply curve of bracelets when the price of necklaces increases?
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From the previous graph, Janet is willing to supply her 8th slice of cheesecake for ______ each week. Since she receives $3.00 per slice, her producer surplus is ______.
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If the price of cheesecake rises to $3.75 per slice, what producer surplus would Janet receive from the 8th slice of cheesecake she sells?
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Use the purple point (diamond symbol) to shade the area representing producer surplus when the price of cheesecake is $3.00 per slice. Then, use the green point (triangle symbol) to shade the area representing additional producer surplus when the price rises to $3.75 per slice.
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If it is difficult to increase production of a good without a significant rise in unit costs, the good is likely to have relatively ______ supply.
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Which supply curve is likely to be less elastic: cars or needles?
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What is the formula for percentage change in quantity?
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What is the formula for change in price?
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What is the formula for price elasticity of supply?
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If the price of sedans decreases from $23,000 to $18,000 per car, this would cause the ______ of sedans to decrease, indicated by a ______ of the supply curve.
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If a technological improvement increases production efficiency, this would cause a ______ of the supply curve because the improvement makes cars ______.
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If a shortage exists in the cantaloupe market, then the current price must be _____ than the equilibrium price. For the market to reach equilibrium, you would expect ______.
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How would you determine which cause was the dominant cause of the decrease in the price of pizzas?
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In a market for hot dogs with an equilibrium price of $2.50, if the current price is $2.00, the market is economically ______.
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Which of the following must be true for a market to achieve an efficient outcome?
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The market price of a good reflects its highest-valued alternative use.
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Study Notes
Demand Concepts
- Demand Schedule: A table showing the relationship between the price of a good and the quantity buyers are willing to purchase at those prices.
- Quantity Demanded: The specific amount of a good that buyers are willing and able to purchase at a particular price.
- Law of Demand: States that, all else being equal, an increase in price leads to a decrease in quantity demanded.
- Demand Curve: A graphical representation of the relationship between the price of a good and the amount demanded at various prices.
- Consumer Surplus: The difference between what consumers are willing to pay for a good and what they actually pay; examples include Valerie's surplus from pizza slices.
Elasticity of Demand
- Elastic Demand: Good is sensitive to price changes; red bell peppers have high elasticity.
- Inelastic Demand: Good with few substitutes and necessary for consumers, like heart valves, shows less sensitivity to price changes.
- Short vs. Long Run Elasticity: Demand for gasoline is less elastic in the short run; consumers adapt to higher prices over time.
Supply Concepts
- Supply Schedule: Shows the relationship between the price of a good and the amount suppliers are willing to offer.
- Law of Supply: Indicates that quantity supplied increases with the price of the good.
- Supply Curve: Graphical depiction of how much of a good suppliers are willing to sell at various prices.
Opportunity Cost and Supply Shift
- Opportunity Cost: The cost associated with forgoing the next best alternative when making a decision.
- Supply Shifts: An increase in the price of necklaces can shift the supply curve for bracelets to the left due to opportunity cost changes.
Producer Surplus
- Producer Surplus: Difference between the price producers receive and the minimum they are willing to accept.
- Examples: Janet's producer surplus varies with cheesecake prices, illustrating how higher prices increase surplus.
Market Dynamics
- Shortages and Equilibrium: When market price is below equilibrium, shortages occur; buyers will increase prices to reach balance.
- Market Efficiency: For a market to achieve efficiency, prices must be dictated by supply and demand forces without external restrictions.
Elasticity of Supply
- Inelastic Supply: Goods that require significant investment or effort to increase production (e.g., cars vs. needles).
- Price Elasticity of Supply Formula: Percentage change in quantity supplied divided by percentage change in price illustrates how supply reacts to price changes.
Market Conditions
- Inefficiency: Markets operating below equilibrium incur inefficiency leading to lost potential gains from trades.
- Market Determinants: An efficient market reflects prices based directly on supply and demand dynamics.
Key Formulas
- Percentage Change in Quantity: 100 * ((Q2-Q1) / (Q2+Q1))
- Change in Price: 100 * ((P2-P1) / (P2+P1))
- Price Elasticity of Supply: Percentage Change in Quantity / Percentage Change in Price
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Description
Test your knowledge of demand, supply, and market processes with these flashcards from Chapter 3. These cards cover key concepts like demand schedules and quantity demanded, helping to enhance your understanding of market dynamics.
