Demand and Supply: An Equilibrium Analysis

Natalia Djohari
Flashcards by Natalia Djohari, updated more than 1 year ago
Natalia Djohari
Created by Natalia Djohari over 4 years ago
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Chapter 4 of ECON1101

Resource summary

Question Answer
Excess Supply the quantity supplied > quantity demanded
Excess Demand quantity demanded > quantity supplied
Equilibrium Price and Quantity the price (quantity) such that the quantity supplied equals the quantity demanded
Reservation Price (Buyer) the highest price a buyer is willing to pay for a given good
Reservation Price (Seller) the lowest price a seller is willing to accept for a given good
Rationing Rule buyers who value the good more will be the first to buy it
Consumer Surplus difference between what a consumer pays and what she was willing to pay
Producer Surplus difference between the price a seller receives and what he was willing to receive
Total Consumer Surplus sum of the economic surplus of all consumers
Total Producer Surplus sum of the economic surplus of all producers
Total Surplus sum of the total consumer surplus and the total producer surplus
Pareto Efficiency an outcome situation in which it is impossible to make any individual better off without making at least one other individual worse off
Pareto Improving Transaction a transaction where all parties involved are better off
The Invisible Hand Principle individuals’ independent efforts to maximize their gains will generally be beneficial for society and result in the socially optimal allocation of resources.
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