ECON 2020 Exa1 - ECON 2020 Exam #2 Study Guide TERMS: Price...

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ECON 2020 Exam #2 Study Guide TERMS: Price floor : minimum legal price for a good or service that a seller can charge. An effective price floor is set above the equilibrium price and so the quantity demanded falls. But sellers want to put more supply out so the quantity supplied rises. Price ceiling : maximum legal price that a seller can charge for a good or service. An effective price ceiling is set below the equilibrium price. The government sets these to protect the consumers. The government requires sellers to lower the price of a good but because the price is lower, the sellers want to sell less of the good. But consumers want more of the good. Inefficient : what price floors and ceilings do to the market. Black market : illegal markets for regulated goods and services. develop in response to the inevitable shortages from price ceilings….grow where the excess is sold for less than the legal minimum in price floors Willingness to pay : maximum price at which a consumer will buy a good Cost : the minimum price at which a producer will sell a good Utility : a measure of the satisfaction that consumption yields an individual; measured in UTILS; we cannot compare the utils assigned to a good by multiple people Total utility : sum of the marginal utility of each unit consumed; TU increases as quantity increases Marginal utility : the additional utility derived from consuming an additional unit of a good Law of Diminishing Marginal Utility : marginal utility decreases as quantity increases. The first of something will have the highest marginal utility
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This note was uploaded on 04/07/2008 for the course ECON 2020 taught by Professor Finck during the Spring '07 term at Auburn University.

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ECON 2020 Exa1 - ECON 2020 Exam #2 Study Guide TERMS: Price...

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