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76 Cards in this Set

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quantity demanded
the amount of any good, service, or resource that people are willing and able to buy during a specified period at a specified price
The Law of Demand
Other things remaining the same, if the price of a good rises, the quantity demanded of that good decreases; and if the price of a good falls, the quantity demanded of that good increases.
Demand
the relationship between the quanitity demanded and the price of a good when all other influences on buying plans remain the same.
demand schedule
a list of the quantities demanded at each different price when all the other influences on buying plans remain the same
demand curve
a graph of the relationship between the quantity demanded of a good and its price when all other influences on buying plans remain the same.
market demand
the sum of the demands of all the buyers in the market
change in the quantity demanded
a change in the quantity of a good that people plan to buy that results from a change in the price of the good
change in demand
a change in the quantity that people plan to buy when any influences on buying plans other than the price of the good changes
main influences on buying plans that change demand
•prices of related goods
•income
•expectations
•number of buyers
•preferences
substitute
a good that can be consumed in the place of another good.
complement
a good that is consumed with another good
normal good
a good for which demand increases when income increases
inferior good
a good for which demand decreases when income increases
quantity supplied
the amount of any good, service, or resource that people are willing and able to sell during a specified period at a specified price
The Law of Supply
other things remaining the same, if the price of a good rises, the quantity supplied of that good increases; and if the price of a good falls, the quantity supplied of that good decreases
supply
the relationship between the quantity supplied and the price of a good when all other influences on selling plans remain the same
supply schedule
a list of the quantities supplied at eash different price when all the other influences on selling plans remain the same
supply curve
a graph of the relationship between the quantity supplied of a good and its price when all the other influences on selling plans remain the same
market supply
the sum of the supplies of all the sellers in the market
change in the quantity supplied
a change in the quantity of a good that suppliers plan to sell that results from a change in the price of the good
change in supply
a change in the quantity that suppliers plan to sell that results from a change in the price of the good
main influences on selling plans that change supply
•prices of related goods
•prices of resources and other inputs
•expectations
•number of sellers
•productivity
change in supply
a change in the quantity that suppliers plan to sell when any influence other than the price of the good changes
substitute in production
a good that can be produced in place of another good
complement in production
a good that is produced along with another good
market equilibrium
when the quantity demanded equals the quantity supplied-when buyers and sellers plans are consistent.
equilibrium price
the price at which the quantity demanded equals the quantity supplied
equilibrium quantity
the quantity bought and sold at the equilibrium price
surplus or excess supply
a situation in which the quantity supplied exceeds the quantity demanded
shortage or excess demand
a situation in which the quantity demanded exceeds the quantity supplied
The law of market forces
when there is a shortage, the price rises, and when there is a surplus, the price falls
An increase in demand...
(shift)
(price)
(quantity supplied)
(equilibrium quantity)
•shifts the demand curve to the right
•raises the price
•increases the quantity supplied
•increases the equilibrium quantity
A decrease in demand...
(shift)
(price)
(quantity supplied)
(equilibrium quantity)
•shifts the demand curve to the left
•lowers the price
•decreases the quantity supplied
•decreases the equilibrium quantity
An increase in supply...
(shift)
(price)
(quantity demanded)
(equilibrium quantity)
•shifts the supply curve right
•lowers the price
•increases the quantity demanded
•increases the equilibrium quantity
A decrease in supply...
(shift)
(price)
(quantity demanded)
(equilibrium quantity)
•shifts the supply curve left
•raises the price
•decreases the quantity demanded
•decreases the equilibrium quantity
Price elasticity of demand
a measure of the extent to which the quantity demanded of a good changes when the price of good changes and all other influences on buyers' plans remain the same
percentage change in price
new price-initial price
________________________ X 100
initial price
percentage change in quantity
new quantity-initial quantity
_____________________________ X100
(new quantity + initial quantity)/2
elastic demand
when the percentage change in the quantity demanded exceeds the percentage change in price
unit elastic demand
when the percentage change in the quantity demanded equals the percentage change in price
inelastic demand
when the percentage change in the quantity demanded is less than the percentage change in price
perfectly elastic demand
when the quantity demanded changes by a very large percentage in response to an almost zero percentage change in price
perfectly inelastic demand
when the quantity demanded remains constant as the price changes
influences on price elasticity of demand
•substitution effects
•income effects
luxury v. necessity
luxury-elastic
necessity-inelastic
narrowness of definition
narrowly defined good- elastic
broad good- inelastic
time elapsed since price change
•more time-elastic
•less time-inelastic
income effects
big expense-elastic
small expense-inelastic
price elasticity of demand equation
percentage change in quantity demanded
________________________________________
percentage change in price
elasticity rules
greater than 1=elastic
equals 1=unit elastic
less than 1=inelastic
total revenue
the total revenue from the sale of a good equals the price of the good multiplied by the quantity sold
total revenue test
a method of estimating the price elasticity of demand by observing the change in total revenue that results from a price change (with all other influences on the quantity sold remaining unchanged)
price elasticity of supply
a measure of the extent to which the quantity supplied of a good changes when the price of the good changes and all other influences on sellers' plans remain the same
perfectly elastic supply
when the quantity supplied changes by a very large percentage in response to an almost zero percentage change in price
elastic supply
when the percentage change in the quantity supplied exceeds the percentage change in price
unit elastic supply
when the percentage change in the quantity supplied equals the percentage change in price
inelastic supply
when the percentage change in the quantity supplied is less than the percentage change in price
perfectly inelastic supply
when the quantity supplied remains the same as the price changes
the two main influences on price elasticity of supply
•production possibilities
•storage possibilities
price elasticity of supply equation
percentage change in quantity supplied
_______________________________________
percentage change in price
cross elasticity of demand
a measure of the extent to which the demand for a good changes when the price of a substitute or complement changes, other things remaining the same
cross elasticity of demand equation
percentage change in quantity demanded of a good
__________________________________________________
percentage change in price of one of its substitutes or complements

substitute=positive
complement=negative
Income elasticity of demand
a measure of the extent to which the demand for a good changes when income changes, other things remaining the same
income elasticity of demand equation
percentage change in quantity demanded
__________________________________________________
percentage change in income

greater than 1=income elastic normal good
between zero and 1=income inelastic normal good
less than zero=inferior good
total revenue equation
price X quantity sold
shortcut
(1) (P
(___) (__)
(demand slope) (Q)

slope= change in P
___________
change in quantity demanded
consumer surplus
measuring how much happier consumers are for engaging in trade in a market
-difference between marginal benefit and the price you pay
producer surplus
how much better off suppliers are from selling in this market
-difference between the price received and the marginal cost
total surplus
the amount of happiness earned by society because of trade in the market

TS=CS+PS
cost
what a seller must give up to produce the good
price
what a seller receives when the good is sold
obstacles to efficiency
-price ceilings and floors and production quotas
-taxes and subsidies
-externalities
-public goods and common resources
-monopoly
externality
a cost or benefit that arises from a production activity that falls on someone other than the producer
utilitarianism
a principle that states that we should strive to achieve the greatest happiness for the greatest number
big tradeoff
a tradeoff between efficiency and fairness that recognizes the cost of making income transfers
tax effectiveness equation
actual tax
_____________ X100
expected tax