Microeconomics
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21 terms
Terms | Definitions |
|---|---|
 Market System | The allocation of most scarce resources through markets. Supply and Demand Determine the Price |
| Law of Demand | As the price of a good increases, the quantity of demand decreases; as the price of a good decreases, the quantity of demand increases |
| Income Effect | As the price goes down, you can buy more of the thing in respect to your finite resources ($); feel wealthier with respect to that purchase; helps explain a change in quantity demanded |
| Substitution Effect | A substitute is a good that serves the same purpose as another good; there will be demand for one or the other; helps explain a change in quantity demanded |
| Giffen Good | A good that refutes the law of demand; has never been found |
| Utility | The usefulness or satisfaction we get from the use of a product |
| Marginal Utility | The utility we derive from each additional unit of a thing dimishes |
| Change in Demand | The very level of a product demanded changes; looks at 1. consumer income 2. change in price of related goods 3. Tastes and Preferences 4. Change in Expectations 5. Number of Consumers 6. Regulations |
| Elasticity of Demand | Measurement of price sensitivity, how much does the quantity demanded change given a change in price |
| Elastic | Price changes, Demand changes a lot |
| Inelastic | Price changes, demand doesn't change a lot. It must change at least a little bit or else it would be a Giffen Good and Giffen Goods don't exist |
| Total Expenditures Test | Amount of money spent by consumers is different at different prices; different amounts of money spent in the market depending on the demand of the product, if its inelastic or elastic |
| Pricing Power | the business has the ability to keep the prices high for a product |
| Determinants of Demand Elasticity | Necessities v. Luxuries, Avalability of close substitutes, Large portion of income?, Time Horizon |
| Law of Supply | Change in Quantity Supplied |
| Change in Supply | Cost of Production |
| Price Systems | Neutrality, Compromise, Can adjust to new circumstances |
| Price Ceiling | The Price you can't go above |
| Price Floor | Price which you can't go below, minimum wage |
| State of Perfect Competition | Many small buyers/sellers, Similar products known to be similar, buyers & sellers know everything about the market, buyers & sellers are free to enter/exit markte |
| As the price increases, the quantity supplied... | increases |
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