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26 Cards in this Set

  • Front
  • Back
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: