In a supply and demand graph, what does the intersection of the supply and demand curves represent?
Market equilibrium.
On a supply and demand graph, show a surplus.
The quantity supplied is greater than quantity demanded at a given price, above the equilibrium price.
On a supply and demand graph, show a shortage.
The quantity demanded is greater than quantity supplied at a given price, below the equilibrium price.
What does a rightward shift of the demand curve indicate?
An increase in demand.
What does a leftward shift of the supply curve indicate?
A decrease in supply.
Given a graph showing a rightward shift in both supply and demand, what can be determined about the change in equilibrium quantity?
Equilibrium quantity increases.
Given a graph showing a leftward shift in both supply and demand, what can be determined about the change in equilibrium quantity?
Equilibrium quantity decreases.
Given a graph showing a rightward shift in demand and a leftward shift in supply, what can be determined about the change in equilibrium price?
Equilibrium price increases.
Given a graph showing a leftward shift in demand and a rightward shift in supply, what can be determined about the change in equilibrium price?
Equilibrium price decreases.
What is represented by the area between the demand curve and the equilibrium price?
Consumer surplus.
Define market equilibrium.
The point where quantity supplied equals quantity demanded.
What is voluntary exchange?
Transactions where both consumers and firms benefit, maximizing utility and profits.
Define allocative efficiency.
Resources are used in the best way possible.
Define market disequilibrium.
A state where the market price or quantity is not at equilibrium, resulting in either a surplus or a shortage.
What is a market surplus?
Quantity supplied is greater than quantity demanded.
What is a market shortage?
Quantity demanded is greater than quantity supplied.
Define quantity demanded.
The total amount of a good or service consumers are willing and able to purchase at a specific price.
Define quantity supplied.
The total amount of a good or service that producers are willing and able to sell at a specific price.
Define determinants of demand.
Factors other than price that can influence the demand for a good or service (I-N-S-E-C-T).
Define determinants of supply.
Factors other than price that can influence the supply of a good or service (R-O-T-T-E-N).
What is the difference between a change in demand and a change in quantity demanded?
A change in demand is a shift of the entire demand curve, while a change in quantity demanded is a movement along the curve due to a change in price.
What is the difference between a change in supply and a change in quantity supplied?
A change in supply is a shift of the entire supply curve, while a change in quantity supplied is a movement along the curve due to a change in price.
Compare and contrast a surplus and a shortage.
A surplus occurs when quantity supplied exceeds quantity demanded, while a shortage occurs when quantity demanded exceeds quantity supplied. Both represent disequilibrium.
Differentiate between normal and inferior goods in the context of income changes.
Demand for normal goods increases with income, while demand for inferior goods decreases with income.
What is the difference between allocative and productive efficiency?
Allocative efficiency means resources are used in the best way possible, while productive efficiency means goods are produced at the lowest possible cost.
Distinguish between price floors and price ceilings.
Price floors are minimum prices set by the government, while price ceilings are maximum prices.
Compare and contrast the effects of a price floor set above equilibrium and a price floor set below equilibrium.
A price floor above equilibrium creates a surplus; a price floor below equilibrium has no effect.
Compare and contrast the effects of a price ceiling set below equilibrium and a price ceiling set above equilibrium.
A price ceiling below equilibrium creates a shortage; a price ceiling above equilibrium has no effect.
Differentiate between consumer surplus and producer surplus.
Consumer surplus is the difference between what consumers are willing to pay and what they actually pay, while producer surplus is the difference between what producers receive and their cost of production.
What is the difference between short run and long run market equilibrium?
Short run market equilibrium is when supply and demand are balanced in the immediate term, while long run market equilibrium is when all firms are operating at an optimal scale and there is no incentive for entry or exit.
