Microeconomics – Exam 1 – Loyola University Chicago – Professor Bobby Barnes

a group of buyers and sellers of a particular good or service.

a market in which there are many buyers and many sellers so that each has a negligible impact on the market price

(1)The goods offered for sale are all exactly the same, and
(2)the buyers and sellers are so numerous that no single buyer or seller has any influence over the market price.

The buyers and sellers that must accept the price the market determines

A market with only one seller

the amount of a good that buyers are willing and able to purchase

The claim that the quantity supplied of a good rises when the price of the good rises

The claim that the quantity demanded of a good falls when the price of the good rises

a table that shows the relationship between the price of a good and the quantity demanded

a graph of the relationship between the price of a good and the quantity demanded

the sum of all the individual demands for a particular good or service

shows how the total quantity demanded of a good varies as the price of the good varies

An item for which an increase in income leads to an increase in demand

An item for which an increase in income leads to a decrease in demand

two goods for which an increase in the price of one leads to an increase in the demand for the other

two goods for which an increase in the price of one leads to a decrease in the demand for the other

If you like ice cream, you buy more of it.

If you expect to earn a higher income next month, you may choose to save less now and spend more of your current income buying ice cream.

If Peter were to join Catherine and Nicholas as another consumer of ice cream, the quantity demanded in the market would be higher at every price, and market demand would increase.

the amount of a good that sellers are willing and able to sell

a table that shows the relationship between the price of a good and the quantity supplied

A representation of the relationship between the price of a good and the quantity supplied

Any change that raises the quantity that sellers wish to produce at any given price

Any change that lowers the quantity that sellers wish to produce at any given price

Any change that raises the quantity that buyers wish to purchase at any given price

Any change that lowers the quantity that buyers wish to purchase at any given price

The production essentials of a product that can affect the supply when their price changes

A determinant of supply that improves production and reduces firms' costs by simplifying the production process through innovation

If Ben or Jerry were to retire from the ice-cream business, the supply in the market would fall

a situation in which the market price has reached the level at which quantity supplied equals quantity demanded

the price that balances quantity supplied and quantity demanded

the quantity supplied and the quantity demanded at the equilibrium price

At the equilibrium price, the quantity of the good that buyers are willing and able to buy exactly balances the quantity that sellers are willing and able to sell.

a situation in which quantity supplied is greater than quantity demanded

a situation in which quantity demanded is greater than quantity supplied

the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance

1. Decide whether the event shifts the supply or demand curve
2. Decide in which direction the curve shifts
3. Use the supply-and-demand diagram to see how the shift changes the equilibrium price and quantity

Supply refers to the position of the supply curve, whereas the quantity supplied refers to the amount suppliers wish to sell.

To summarize, a shift in the supply curve is called a "change in supply," and a shift in the demand curve is called a "change in demand." A movement along a fixed supply curve is called a "change in the quantity supplied," and a movement along a fixed demand curve is called a "change in the quantity demanded."

The equilibrium price rises, and the equilibrium quantity falls.

a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants

Something you have to do

a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price

measures how willing consumers are to buy less of the good as its price rises.

Substitutes
Necessities/Luxuries
Definition of the Market
Time Horizon

Percent change in quantity demanded
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Percent Change in Price

the amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold

---When demand is inelastic (a price elasticity less than 1), price and total revenue move in the same direction: If the price increases, total revenue also increases.
---When demand is elastic (a price elasticity greater than 1), price and total revenue move in opposite directions: If the price increases, total revenue decreases.
---If demand is unit elastic (a price elasticity exactly equal to 1), total revenue remains constant when the price changes.

a measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income

Percent Change in Quantity Demanded
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Percent Change in Income

a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in price of the second good

percent change in quantity demanded of good 1
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percent change in the price of good 2

a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price

percent change in quantity supplied
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percent change in price

a legal maximum on the price at which a good can be sold

a legal minimum on the price at which a good can be sold

Above Equilibrium Price

Below Equilibrium Price

Something you should do

the manner in which the burden of a tax is shared among participants in a market

the maximum amount that a buyer will pay for a good

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

the value of everything a seller must give up to produce a good

the amount a seller is paid for a good minus the seller's cost of providing it

The sum of consumer surplus and producer surplus

the property of a resource allocation of maximizing the total surplus received by all members of society

the property of distributing economic prosperity uniformly among the members of society

--Free markets allocate the supply of goods to the buyers who value them most highly, as measured by their willingness to pay.
---Free markets allocate the demand for goods to the sellers who can produce them at the lowest cost.

the fall in total surplus that results from a market distortion, such as a tax. c+e

the reduction in consumer and producer surplus is greater than the tax revenue.
the tax revenue is greater than the reduction in consumer and producer surplus.
the reduction in consumer surplus is greater than the reduction in producer surplus.
the reduction in producer surplus is greater than the reduction in consumer surplus.