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14 Cards in this Set

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  • Back
Complements
Products that are usually consumed jointly (for example, peanut butter and jelly). They are related such that a decrease in the price of one will cause an increase in demand for the other.
Consumer surplus
The difference between the maximum price consumers are willing to pay and the price they actually pay. It is the net gain derived by the buyers of the good.
Economic efficiency
A market meets the criterion of blank if all the gains from trade have been realized. An action is consistent with efficiency only if it creates more benefits than costs. With well-defined property rights and competition, market equilibrium is efficient.
Equilibrium
A state of balance between conflicting forces, such as supply and demand.
Law of demand
A principle that states there is an inverse relationship between the price of a good and the amount of it buyers are willing to purchase. As the price of a product increases, other things constant, consumers will purchase less of the product.
Law of supply
A principle that states there is a direct relationship between the price of a good and the amount of it offered for sale. As the price of a product increases, other things constant, producers will increase the amount of the product supplied to the market.
Loss
Deficit of sales revenue relative to the opportunity cost of production. Losses are a penalty imposed on those who misuse resources in lower-valued uses as judged by buyers in the market.
Market
An abstract concept that encompasses the trading arrangements of buyers and sellers that underlie the forces of supply and demand.
Producer surplus
The difference between the minimum supply price and the actual sales price. It measures the net gains to producers and resource suppliers from market trade. It is not the same as profit.
Profit
An excess of sales revenue relative to the opportunity cost of production. The cost component includes the opportunity cost of all resources, including those owned by the firm. Therefore, blank accrues only when the value of the good produced is greater than the value of other goods that could have been produced with those same resources.
Short run
A time period of insufficient length to permit decision makers to adjust fully to a change in market conditions. For example, in the blank, producers will have time to increase output by using more labor and raw materials, but they will not have time to expand the size of their plants or to install additional heavy equipment.
Substitutes
Products that serve similar purposes. They are related such that an increase in the price of one will cause an increase in demand for the other (for example, hamburgers and tacos, butter and margarine, Chevrolets and Fords).
Long Run
A time period of sufficient length to enable decision makers to adjust fully to a market change.
Opportunity cost of production
The total economic cost of producing a good or service. The cost component includes the opportunity cost of all resources, including those owned by the firm. The blnk is equal to the value of the blank of other goods sacrificed as the result of producing the good.