Economics chapter 4,5,6 demand, supply, price
Terms
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- Law of Demand
- when a good's price is lower, consumers will buy more of it (and vice versa)
- Substitution Effect
- when consumers react to an increase in a good's price by consuming less of that good and more of other goods
- Income Effect
- the change in consumption resulting from a change in real income
- Demand Schedule
- a table that lists the quantity of a good a person will buy at each different price
- Market Demand Schedule
- a table that lists the quantity of a good all consumers in a market will buy at each different price
- Demand Curve
-
A graphic representation of a demand schedule
From left, to right price always decreases and the quantity demanded always increases (always goes down) - Ceteris parabis
- "all other things held constant"-used when only price changes
- Change in Demand
- when ceteris parabis doesn't hold true, the entire demand curve will shift to show the change
- Normal goods
- a good consumers will demand more of when their incomes increase
- Inferior Goods
- a good that consumers demand less of when their incomes increase (ex/ used cars)
- Complements
- two goods that are bought and used together (ex/ rowboat and oars)
- Supplements
- goods used in place of one another
- Elasticity of Demand
- a measure of how consumers react to a change in price
- Inelastic demand
- demand that is not sensitive to a change in price (ex/ bypass surgery)
- Elastic demand
- demand that is very sensitive to changes in price
- unitary elastic
- the percentage change in quantity demanded is equal to the change in price (eleasticity is equal to exactly one)
- Equation for Elasticity
-
percentage change in quantity demanded / percentage change in price
percentage change in price= (original #-new #)/original # times 100 - total revenue
- the total amount of money a firm receives by selling goods or services
- elasticity and revenue
-
elastic:as price goes down, total revenue rises
inelastic:as price goes down, total revenue goes down - Law of Supply
- tendency of suppliers to offer more of a good at a higher price
- quantity supplied
- the amount a supplier if willing and able to supply at a certain price
- Supply Schedule
- a chart that lists how much of a good a supplier will offer at different prices
- variable
- a factor that can change
- market supply schedule
- a chart that lists how much of a good all suppliers will offer at different prices
- supply curve
- a graph of the quantity of supplied of goods at different prices
- market supply curve
- a graph of the quantity supplied of a good by all suppliers at different prices
- elasticity of supply
- a measure of the way quantity supplied reacts to a change in price (key factor=time in business)
- Marginal product of labor
- the change in output from hiring one additional unit of labor
- increasing marginal returns
- a level of production in which the marginal product of labor increases as the number of workers increases
- diminishing marginal returns
- a level of production in which the marginal product of labor decreases as the number of workers increases
- negative marginal returns
- actually decreases overall output
- fixed cost
- a cost that doesn't change no matter how much of a good is produced (ex/ rent)
- variable cost
- a cost that rises or falls depending on how much is produced (ex/ costs of raw materials)
- total cost
- fixed costs + variable costs
- marginal cost
- the cost of producing one more unit of a good
- marginal revenue
- the additional income from selling one more unit of a good; sometimes equal to price. When marginal revenue is equal to marginal cost, this is the bets level of output
- operating cost
- the cost of operating a facility, such as a store or factory
- subsidy
- a government payment that supports a business or market
- excise tax
- a tax on the production or sale of a good
- regulation
- government intervention in a market that affects the production of a good
- equilibrium
- the point at which quantity demanded and quantity supplied are equal
- disequilibrium
- describes any price or quantity not at equilibrium; when quantity supplied is not equal to quantity demanded in a market
- excess demand
- when quantity demanded is more than quantity supplied (like cabbage patch dolls!)
- excess supply
- when quantity supplied is more than quantity demanded
- price ceiling
- a maximum price that can be legally charged for a good or service
- price floor
- a minimum price for a good or service
- rent control
- a price ceiling placed on rent
- minimum wage
- a minimum price that an employer can pay a worker for an hour of labor
- surplus
- a situation in which quantity supplied is greater than quantity demanded; aka excess supply
- shortage
- a situation in which quantity demanded is greater than quantity supplied; aka excecss demand
- supply shock
- a sudden shortage of a good
- rationing
- a system of allocating scarce goods and services using criteria other than price
- spillover costs
- costs of production that affect people who have no control over how much of a good is produced (ex/ factory pollution)