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•Quantity supplied/demanded – the total amount of a good of uniform
quality that all sellers/buyers are willing to produce/purchase at a single
price during a period of time.
•Supply/demand curve – A curve or schedule showing the total quantity of a
good of uniform quality that sellers/buyers want to sell/buy at each price
during a particular period of time provided all else is constant.
•Supply as an equation – QS = a +bPS, where QS=quantity supplied,
PS=supply price, a=horizontal intercept, and b=reciprocal of slope.
•Demand as an equation – QD = c -dPD, where QD=quantity supplied,
PD=supply price, c=horizontal intercept, and d=reciprocal of slope.
•Equilibrium quantity – Q* = c-d(c-a/b+d)
2.Markets, Equilibrium, and Efficiency
•The Equilibrium Principle – a market in equilibrium leaves no
unexploited opportunities for individuals.
•The Efficiency Principle – economic efficiency occurs when total economic
surplus is maximized. Efficiency is an important social goal because, when
the pie is larger, everyone gets a bigger piece.
•Efficient quantity – the quantity that results in the maximum possible
economic surplus from producing and consuming the good. The level of
production for which the cost and benefit of one more unit are the same.
•Economic efficiency – condition that occurs when all goods and services
are produced and consumed at their respective socially optimal levels.
3.Explaining Changes in Price and Quantities
•Change in the quantity demanded/supplied – along the curve from a
change in price.
•Change in demand/supply – shift of the entire demand/supply curve.
•Law of supply states that as price falls, ceteris paribus, supply will also fall.
•Factors that shift supply
i.A change in input prices.