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24 Cards in this Set
- Front
- Back
Define market.
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any institution or mechanism that brings together buyers (demanders) and sellers (suppliers) of a particular good or service.
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define demand.
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a schedule showing the amounts of a good or service that buyers (or a buyer) wish to purchase at various prices during some time period.
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What is the law of demand?
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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.
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Define income effect.
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a change in the quantity demanded of a product that results from the change in real income (purchasing power) caused by a change in the product's price.
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What is the substitution effect?
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(1) a change in the quantity demanded of a consumer good that results from a change in its relative expensiveness caused by a change in the product's price; (2)the effect of a change in the price of a resource on the quantity of the resource employed by a firm, assuming no change in its output.
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Define demand curve.
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a curve illustrating demand.
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What are determinants of demand?
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factors other than price that determine the quantities demanded of a good or service.
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What are normal goods?
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a good or service whose consumption increases when income increases and falls when income decreases, price remaining constant.
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What are inferior goods?
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a good or service whose consumption declines as income rises.
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What are substitute goods?
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products or services that can be used in place of each other. When the price of one falls, the demand for the other falls; conversely, when the price of one product rises, the demand for the other product rises.
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What is a complementary good?
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products and services that are used together. When the price of one falls, the demand for the other increases (and conversely.)
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Define change in demand.
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a change in the quantity demanded of a good or service at every price; a shift of the demand curve to the left or right.
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Define supply.
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a schedule showing the amounts of a good or service that sellers (or a seller) will offer at various prices during some period.
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What is the law of supply?
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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.
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Define supply curve.
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a curve illustrating supply.
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What are determinants of supply?
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factors other than price that determine the quantities supplied of a good or service.
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Define change in supply.
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a change in the quantity supplied of a good or service at every price; a shift of the demand curve to the left or right.
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Define surplus.
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the amount by which the quantity supplied of a product exceeds the quantity demanded at a specific (above-equilibrium) price.
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Define shortage.
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the amount by which the quantity demanded of a product exceeds the quantity supplied at a particular (below-equilibrium) price.
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What is the equilibrium price?
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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.
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What is the equilibrium quantity?
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(1)the quantity demanded and supplied at the equilibrium price in a competitive market; (2) the profit-maximizing output of a firm.
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What is the rationing function of prices?
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the ability of market forces in competitive markets to equalize quantity demanded and quantity supplied and to eliminate shortages and surpluses via changes in prices.
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What is a price ceiling?
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a legally established maximum price for a good or service.
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What is a price floor?
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a legally determined price above the equilibrium price.
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