Chapter 3: Benefits and Costs, Supply and Demand Flashcards
(15 cards)
1
Q
Demand curve
A
- represents all the different potential quantities of a good available and the WTP of consumers for each quantity
- Qd = a - bP (a=intercept, b=slope)
2
Q
Inverse Demand Curve
A
P = a/b - (1/b)Qd
3
Q
Quantity demanded
A
- single point along the demand curve for a certain price
4
Q
Law of diminishing marginal utility
A
- the more of a good you have, the less you are willing to pay for another unit of the same good
5
Q
Marginal willingness to pay
A
- the WTP for the next unit of good, depends on
1. How much do you already have
2. Tastes and preferences
3. Time and situation
6
Q
Total willingness to pay
A
- total amount you are WTP for a set amount of items, calculate by finding the area under the demand curve (also the ability to pay)
7
Q
Aggregate Demand
A
- horizontal summation (private goods) of demand curves of all the people typically grouped by geographical location, vertical summation (public goods)
8
Q
Shifts in demand curve -
A
- Change in tastes and preferences
- Change in time
- Change in income
- Change in price of related goods (substitute and complementary goods)
9
Q
Substitute good
A
- potato and carrot
10
Q
Complementary good
A
- gas and oil (gas produced from extraction of oil)
11
Q
Marginal Costs
A
- measure the amount by which total costs increase as output increases by one unit
12
Q
Total costs
A
- costs of producing the total amount of output
13
Q
Increasing returns to scale/ economies of scale
A
- proportionate saving in costs due to increased production, usually from specialization (10000 car cheaper to make than 2nd car)
14
Q
Aggregate Supply
A
- horizontal summation of all marginal costs curve of an industry for all firms producing at the same output
15
Q
Shifts in supply curve
A
- Changes in the costs of inputs
2. Changes in technology (productivity)
