Read the summary and the most important questions on Microeconomics | 9781464187025 | Austan Goolsbee; Steven Levitt; Chad Syverson

• 2 Supply and demand

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• What are the 4 assumptions of the supply and demand model?

  1. We restrict focus to supply and demand in a single market
  2. All goods sold/bought are identical
  3. All goods sold in market sell for same price, everyone has same information about price and quality of products being sold, etc.
  4. There are many buyers and sellers in the market, meaning an individual can have almost no effect on the price

• Factors that influence demand

  1. Price
  2. Number of consumers
  3. Consumer income/wealth
  4. Consumer tastes
  5. Price of other goods: substitutes, complement

• What is a substitute?

  A good that can be used in place of another good

• What is a complement?

  A good that is purchased and used in combination with another good

• Why do we consider only the price in the supply demand model?

  1. It is one of the most important factors that influences demand
  2. Prices can be changed frequently and easily, which is handy when you want to see how the market reacts to shocks
  3. Price also exerts the biggest influence on the supply side of the market

• What are the 4 most important factors that influence supply?

  1. Price
  2. Supplier's costs of production
  3. Number of sellers
  4. Sellers' outside options: could they earn more selling some other product at some other market

• What is production technology?

  The processes used to make, distribute and sell a good

• What is the supply choke price?

  The price at which no firm is willing to produce a good, and quantity supplied is 0. The vertical intercept of the inverse supply curve

• What is the difference between change in supply and change in quantity supplied?

  Change in supply indicates a shift of the entire supply curve caused by a change in a determinant of the supply other than the good's own price, while a change in quantity supplied indicates a change along the supply curve as a result of change in the good's price.

• What is the equilibrium price?

  The only price at which quantity supplied equals quantity demanded