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### 26 Cards in this Set

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 demand quantities of a product that people are willing and able to purchase at various possible prices supply refers to the number of items that sellers will offer for sale at any price Rationing Effect Production-Motivating Function Two (2) functions of price Rationing Effect the more scare something is, the higher the price, and the less likely people will buy it Production-Motivating Function prices serve to encourage producers to increase or decrease their level of output Inventory stock of goods held by a business Law of Demand as price increases, the quantity of a good that would be purchased decreases and vice versa Desire wanting something without having the ability to pay for it Demand Schedule a table showing the quantities if a product that would be purchased at various prices Diminishing marginal utility last item consumed will be less satisfying than the one before Elasticity of Demand proportional change in quantity demanded given a proportional change in price Elastic luxury; not needed Inelastic necessity Revenue the basic cost of something (x) the number of units sold Revenue Tax cost (x) number of units Supply Schedule quantity of goods that would be offered for a sale at various prices Law of Supply states that sellers will offer more of a product at a higher price and less at a lower price Higher the price greater the incentive to buy and sell the product 1. Change in the cost of production - Costs decrease  supply increases, make more profit - Costs increase  supply decreases, make less 2. Other profit opportunities -Companies can produce multiple goods - Sell most profitable thing 3. Future Expectations: - pay economists so company can stay ahead of the competition and invest money correctly - increase production - anticipate good economy – produce more Changes in Supply (Three) equilibrium point at which things remain stable as long as components remain unchanged market price price at which good and money will actually be exchanged 1. Buyers and sellers have full knowledge of the prices quoted in the market 2. Many buyers and sellers so that no individual could control prices 3. Products are identical so that it would make no sense for buyers to pay more, nor sellers to make less 4. Buyers and sellers are free to enter or exit the market Characteristics of a perfect market (pure competition) Excess Quantity Demanded amount of a product that can be sold at a price higher than the previous market price Excess Quantity Supply: the difference between the amount that buyers would be willing to purchase at prices above equilibrium and the amount that sellers would be willing to put on the market at those prices Four Characteristics: 1. Increase in demand will result in an increase of the market price 2. Decrease in demand will result in a decrease in the market price 3. Increase in supply will result in a decrease in the market price Ex – excess of apples 4. Decrease in supply will result in a increase in a market price 1. Necessities 2. Difficult to find substitutes 3. Relatively Inexpensive Why demand is inelastic: