Micro Cheat Sheet Done Essay

Price of m ilk is increased from $2.85 to $3.15 per 4 L = increase of $0.30 §
Midpoint
= ($2.85 + $3.15)/2 = $3.00 §
Change
in Price = $0.30 / $3.00 = 0.10 •
Quantity
of m ilk supplied by dairy farmers increases from 9,000 to 11,000 L per m onth = increase of 2,000 §
Midpoint
= (9,000 + 11,000)/2 = 10,000 §
Change
in Quantity = 2,000 / 10,000 = 0.20 •
Price
Elasticity of Supply = 0.20 / 0.10 = 2 •
Price
ceiling: Legal m aximum price at w hich a good or service can be sold •
Two
possible outcomes: §
Price
ceiling is not binding: M arket price w ill be the equilibrium price and the quantity demanded and supplied w ill be in equilibrium §
Price
ceiling is binding: M arket price w ill equal the price ceiling, and quantities demanded and supplied w ill be in disequilibrium (i.e., there w ill be a shortage) •
Price
floor: Legal m inimum price at w hich a good or service can be sold •
Two
possible outcomes: §
Price
floor is not binding: M arket price w ill be the equilibrium price and the quantity demanded and supplied w ill be in equilibrium §
Price
floor is binding: M arket price w ill equal the price floor, and quantities demanded and supplied w ill be in disequilibrium (i.e., there w ill be a surplus) CONSUMER SURPLUS: W illingness to Pay: The m aximum amount that a buyer w ill pay for a good or service •
Consumer
Surplus: The benefit that consumers obtain from participation in a m arket = the difference between the amount the consumer is w illing to pay and w hat the consumer actually pays •

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The height o f the demand curve r eflects buyers’ willingness to p ay. B ecause the d emand curve reflects buyers’ willingness to p ay, it c an also b e used to measure consumer surplus. In p anel (a), the p rice of the g ood is $ 80, and the consumer surplus is $20. In p anel (b), the p rice of the g ood is $ 70, and the consumer surplus is $40.

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Opportunity Cost: The

amount that a seller m ust give up to produce a good or service Producer Surplus: The benefit that producers obtain from participation in a m arket = the difference between the amount the producer actually receives and the producer’s opportunity cost •
The
graph shows the supply curve that corresponds to this supply schedule. Note that the height of the supply curve is related to the sellers’ costs. At any quantity, the price given by the supply curve shows the cost of the m arginal seller, the seller w ho w ould leave the m arket first if the price w as any lower. At a quantity of 4 houses, for instance, the supply curve has a height of $900, the cost that M ary (the m

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