_ 1. If the number of buyers in a market decreases, then
a. demand will increase.
b. demand will decrease.
c. supply will increase.
d. supply will decrease.
_ 2. The graphs show the demand
_ 1. Which area represents consumer surplus at a price of P1?
_ 2. Which area represents the increase in consumer surplus when the price falls
from P1 to P2?
Quantity of goods and services produced from each unit of labor input
Higher standard of living
Growth rate of nations productivity
Determines growth rate of its average income
How the Economy as a Whole Works,
_ 1. On a graph, the area below a demand curve and above the price measures
willingness to pay.
_ 2. If the price
The benevolent social planner
Efficient allocation of resources
Laissez faire = let people do as they will
Adam Smiths invisible hand
Guides everyone in the market to the best outcome
Takes all the information about buyers and sellers i
Advantages of the multilateral approach
Potential to result in freer trade than unilateral approach
Reduce trade restrictions abroad and at home
Producers are fewer and better organized than
Greater political influence
Factors of production
Efficient levels of production
The economy is getting all it can from the scarce resources available
Points on the production possibilities frontier
The only way to produce more of one good
Is to prod
Efficiency vs. equality
Society getting the maximum benefits from its scarce resources
Size of the economic pie
Distributing economic prosperity uniformly among the members of society
Principle : The cost of something is what you give
Market Efficiency & Failure
When these assumptions do not hold
Market equilibrium is efficient may no longer be true
In the world, competition is far from perfect
Control market prices
A single buyer or seller (small group)
Markets are ineffi
Adverse effects in the long run
Preference to tenants without children
Discriminate on the basis of race
Long waiting lists
Bribes to building superintendents
People respond to incentives
Landlords clean and safe building