Supply and Demand Vocab

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demand

combination of desire, ability, and willingness to buy a product

microeconomics

branch of economic theory that deals with behavior & decision making by small units such as individuals & firms

demand schedule

listing showing the quantity demanded at all possible prices that might prevail in the market at a given time

demand curve

graph showing the quantity demanded of a product at each and every possible price that might prevail in the market at a given time

law of demand

rule stating that more will be demanded at lower prices and less at higher prices; inverse relationship b/w price and quantity demanded

market demand curve

demand curve that shows the quantities demanded by everyone who is interested in purchasing a product

marginal utility

satisfaction or usefulness obtained from acquiring one more unit of a product

diminishing marginal utility

decreasing satisfaction or usefuness as additional units of a product are acquired

change in quantity demanded

movement along the demand curve showing that a different quanity is purchased in response to a change in price

income effect

the portion of a change in quantity demanded caused by a change in a consumer's real income when the price of a product changes

substitution effect

the portion of a change in quantity demanded due to a change in the relative price of a product

change in demand

consumers demand different amounts at every price, causing the demand curve to shift to the left or the right

substitutes

competing products that can be used in place of one another; products related in such a way that an increase in price of one increases the demand for the other

complements

products that increase the value of other products; products related in such a way that an increase in the price of one reduces the demand for both

elasticity

a measure of responsiveness that tells us how a dependent variable such as quantity responds to a change in an independent variable such as price

demand elasticity

measure of responsiveness relating change in quantity demanded (dependent variable) to a change in price (independent variable)

elastic

type of elasticity where the percentage change in the independent variable (usually price) causes a more than proportionate change in the dependent variable (usually quantity demanded or supplied)

inelastic

type of elasticity where the percentage change in the independent variable (usually price) causes a less than proportionate change in the dependent variable (usually quantity supplied or demanded)

unit elastic

elasticity where a change in the independent variable (usually price) generates a proportional change of the dependent variable (quantity demanded or supplied)

supply

schedule of quantities offered for sale at all possible prices in a market

law of supply

rule stating that more will be offered for sale at high prices than at lower prices

supply schedule

tabular listing showing the quantities produced or offered for sale at each and every possible price in the market

supply curve

graphical representation of the quantities produced at each and every possible price in the market

market supply curve

supply curve that shows the quantities offered at various prices by all firms that sell the product in a given market

quantity supplied

amount offered for sale at a given price; point on the supply curve

change in quantity supplied

change in amount offered for sale in response to a price change; movement along the supply curve

change in supply

different amounts offered for sale at each & every possible price in the market; shift of the supply curve

subsidy

gov. payment to encourage or protect a certain economic activity

supply elasticity

responsiveness of quantity supplied to a change in price

theory of production

theory dealing with the relationship between the factors of production and the output of goods and services

short run

production period so short that only variable inputs can be changed

long run

production period long enough to change amount of variable & fixed inputs used in production

law of variable proportions

rule stating that short-run output will change as one input is varied while the others are held constant

production function

graphic portrayal showing how a change in the amount of a single variable input affects total output

raw materials

unprocessed natural resources used in production

total product

total output or production by a firm

marginal product

extra output due to the addition of one more unit of input

stages of production

phases of production: increasing, decreasing, & negative returns

diminishing returns

stage of production where output increases at a decreasing rate as more units of variable input are added

fixed cost

cost of production that does not change when output changes

overhead

broad category of fixed costs that includes interest, rent, taxes, & executive salaries

variable cost

production cost that varies as output changes; labor, energy, raw materials

total cost

variable plus fixed cost; all costs associated with production

marginal cost

extra cost of producing one additional unit of production

e-commerce

electronic business or exchange conducted over the internet

total revenue

total receipts; price of goods sold times quantities sold

marginal revenue

extra revenue from the sale of 1 additional unit of production

marginal analysis

decision making that compares the extra cost of doing something to the extra benefit gained

break-even point

production needed if the firm is to recover its costs; production level where total cost equals total revenue

profit maximizing quantity of output

level of production where marginal cost is equal to marginal revenue

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