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What does a downward-sloping demand curve represent?
The inverse relationship between price and quantity demanded.
What causes a shift in the supply curve?
A change in a non-price determinant of supply.
What is the law of diminishing marginal returns?
As more units of a variable input are added, the additional output eventually decreases.
What causes a movement along the supply curve?
A change in the price of the good itself.
What is the income effect?
A lower price increases the consumer's real income, allowing them to buy more of the good.
What is consumer surplus?
The difference between what consumers are willing to pay and what they actually pay.
What is producer surplus?
The difference between the price producers receive and their minimum acceptable price.
What causes an upward-sloping supply curve?
Increasing marginal costs and profit incentive as price rises.
What is the law of supply?
As the price of a good rises, the quantity supplied increases, ceteris paribus.
What are the three functions of the price mechanism?
Signaling, incentive, and rationing.
When is allocative efficiency achieved?
When marginal benefit equals marginal cost and social surplus is maximized.
What is the substitution effect?
As the price of a good falls, it becomes more attractive compared to substitutes, increasing demand.
What happens when there is excess demand?
A shortage occurs, and price tends to rise to reach equilibrium.
What is the law of demand?
As the price of a good falls, the quantity demanded increases, ceteris paribus.
List three non-price determinants of supply.
Costs of production, technology, and number of firms.
What are non-price determinants of demand?
Income, tastes, future expectations, prices of related goods, and number of consumers.
What causes a shift in the demand curve?
A change in a non-price determinant of demand.
What is market equilibrium?
The point where quantity demanded equals quantity supplied.
What is the law of diminishing marginal utility?
As consumption increases, the additional satisfaction from consuming one more unit decreases.
What causes a movement along the demand curve?
A change in the price of the good itself.
