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Econ Unit 2
Terms in this set (64)
a schedule showing the amounts of a good or service that buyers wish to purchase at various prices during some time period
a table of the quantity demanded of a good at different price levels
Law of Demand
the principle that other things equal, an increase in a product's price will reduce the quantity of it demanded, and conversely for a decrease in price
Diminishing Marginal utility
the principle that as a consumer increases the consumption of a good or service the marginal ulitilty obtained from each additional unit of the good or service decreases
a change in the quantity demanded of a product that results from the change in real income caused by a change in the product's price
the idea that as prices rise (or incomes decrease) consumers will replace more expensive items with less costly alternatives.
a graph showing how the demand for a commodity or service varies with changes in its price.
market demand is the total of what everybody in the market wants.
Determinants of Demand
change in taste- advertising, news reports, fashion trends, the intro of new products and even changes in the season can change consumer tastes
change in prices of related goods- substitutes and complements. substitutes- two goods are substitutes if a fall in price of one of the goods makes consumers less willing to buy the other product for example pepsi and coke. 2 goods are complements if a fall in price of one good makes people more willing to buy the other good for ex hot dog sausages and hot dog buns
change in consumer income-a lower income means you have less to spend so you will demand less of a normal good but more of a inferior good
normal goods- rise in income increases the demand
for normal goods
demand for inferior goods decreases when income rises for example generic brand products and dollar menu
change in number of buyers- in crease in number of buyers will increase product demand. decrease in number of buyers will decrease product demand
change in expectations-expectation about future income for example if house prices will increase in the future, so people will buy a house now before it increases(demand increases for now)
all of these shift the curve, price doesn't shift curve
a good or service whose consumption increases when income increases and falls when income decreases, price remaining constant
a good or service whose consumption declines as income rises, prices held constant
products or services that can be used in place of each other. when the price of one falls, the demand for the other product falls; conversely when the price of one product rises the demand demand for the other product rises
products or services that are used together for example hot dog sausages and hot dog buns. when the price of one falls the demand for the other increases and conversely
Change in Quantity Demanded
a change in the amount of a product that consumers are willing and able to purchase because of a change in the product's price
Change in Demand
a change in the quantity demanded of a good or service at any price, a shift of the demand curve to the left or the right
a schedule showing the amounts of a good or service that sellers will offer at various prices during some period
a table that shows how much of a good or service an individual producer is willing and able to offer for sale at each price in a market
Law of Supply
the principle that other things equal, an increase in the price of a product will increase the quantity of it supplied and conversely for a price decrease
the extra (additional) cost of producing 1 more unit of output, equal to the change in total cost divided by the change in output
a graph that shows how much of a good or service an individual producer is willing and able to offer for sale at each price
The market supply curve is an upward sloping curve depicting the positive relationship between price and quantity supplied. The market supply curve is derived by summing the quantity suppliers are willing to produce when the product can be sold for a given price.
Determinants of Supply
resource input prices or costs
taxes- increase in taxes decreases supply, decreases in taxes increases supply
technology generally increases supply
expectation of suppliers about future price of a product
number of suppliers-more suppliers results in more goods being supplied
ex) a recall on beef would affect supply
on the same curve whole curve still shifting
Change in Supply
a change in the quantity supplied of a good or service at every price, a shift left of the supply curve to the left or right
Change in Quantity Supplied
a change in the amount of a product that producers offer for sale because of a change in the product's price
the price in a competitive market at which the quantity demanded and the quantity supplied are equal, there is neither a shortage nor a surplus and there is no tendency for the price to rise or fall
the quantity demanded and supplied at equilibrium price in a competitive market
Market equilibrium is a market state where the supply in the market is equal to the demand in the market
the amount by which the quantity supplied of a product exceeds the quantity demanded at a specific price
the amount by which the quantity demanded of a product exceeds the quantity supplied at a particular price
the production of a good in the least costly way, occurs when production takes place at the output at which average total cost is a minimum and marginal product per dollar's worth of input is the same for all inputs
Allocative efficiency is a state of the economy in which production represents consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing.
a legally established maximum price for a good or service
a legally determined minimum price above the equilibrium price
Price elasticity of demmand
the ratio of the percentage change in quantity demanded of a product or resource to the percentage change in its price. A measure of the responsiveness of buyers to a change in the price of a product or resource
Price- elasticity and coefficient formula
The coefficient of elasticity or COE for short is the measure of elasticity. It is defined as the percentage change in the quantity demanded divided by the percentage change in price.
a method for calculating price elasticity of demand of price elasticity of supply that averages the two prices and two quantities as the reference points for computing percentages
Demand whose percentage change is less than a percentage change in price. For example, if the price of a commodity rises twenty-five percent and demand decreases by only two percent, demand is said to be inelastic.
Describes a supply or demand curve which is perfectly responsive to changes in price. That is, the quantity supplied or demanded changes according to the same percentage as the change in price. A curve with an elasticity of 1 is unit elastic.
Perfectly inelastic demand
product or resource demand in which price can be of any amount at a particular quantity of the product or resource demanded,
Perfectly elastic demand
product or resource demand in which quantity demanded can be of any amount at a particular product price
Total revenue (TR) Test
Total revenue in economics refers to the total receipts from sales of a given quantity of goods or services. It is the total income of a business and is calculated by multiplying the quantity of goods sold by the price of the goods.
If demand is elastic TR _________________
If demand is inelastic TR_________________
In the case of unit elasticity, TR____________
Price Elasticity along a Linear Demand Curve
Determinants of Price Elasticity of Demand
Price Elasticity of Supply
Price elasticity of supply is a measure used in economics to show the responsiveness, or elasticity, of the quantity supplied of a good or service to a change in its price.
a period in which producers of a product are unable to change the quantity produced in response to a change in its price and in which there is perfectly inelastic supply
a period of time in which producers are able to change the quantities of some but not all of the resources they employ,a period in which some resources are fixed and some are variable
a period of time long enough to enable producers of a product to change the quantities of all the resources they employ, period in which all resources and costs are variable and no resources or costs are fixed
Cross elasticity of demand
the cross elasticity of demand or cross-price elasticity of demand measures the responsiveness of the quantity demanded for a good to a change in the price of another good, ceteris paribus.
cross elasticity of demand for substitute goods ___________________
will be positive
Cross elasticity of demand for complementary goods
will be negative
Cross elasticity of demand for independent goods ________________________
independent goods are goods that have a zero cross elasticity of demand
Income elasticity of demand
the ratio of the percentage change in the quantity demanded of a good to a percentage change in consumer income, measures the responsiveness of consumer purchases to income changes
the difference between the maximum price a consumer is willing to pay for an additional unit of a product and its market price, the triangular area below the demand curve and above the market price
difference between the actual price a producer receives and the minimum price the producer would be willing to accept
Efficiency losses (deadweight losses)
also called deadweight loss,reductions in combined consumer and producer surplus caused by an underallocation or overallocation of resources to the production of a good or service.
the person or group that ends up paying a tax
Efficiency loss of tax (deadweight loss of tax)
Deliberate choice of a person not to acquire (not to pay attention to) a certain kind of information because of its cost in terms of time and effort that yields little or no benefit.
a situation where one party to a market transaction has much more information about a product or service than the other. the result may be an under or overallocation of resources
the possibility that individuals or institutions will change their behavior as the result of a contract or agreement
for example a bank whose deposits are insured against losses may make riskier loans and investments
a problem arising when information known to one party to a contract or agreement is not known to the other party, causing the latter to incur major costs. examples individuals who have the poorest health are most likely to buy health insurance
THIS SET IS OFTEN IN FOLDERS WITH...
AP Government Chapters 1 &2
Unit 1 Econ
AP Econ Chapter 4 and 8 Vocab
Chapter 9 Econ Vocab
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