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24 Cards in this Set

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  • Back
Define market.
any institution or mechanism that brings together buyers (demanders) and sellers (suppliers) of a particular good or service.
define demand.
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.
What is the law of demand?
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.
Define income effect.
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.
What is the substitution effect?
(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.
Define demand curve.
a curve illustrating demand.
What are determinants of demand?
factors other than price that determine the quantities demanded of a good or service.
What are normal goods?
a good or service whose consumption increases when income increases and falls when income decreases, price remaining constant.
What are inferior goods?
a good or service whose consumption declines as income rises.
What are substitute goods?
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.
What is a complementary good?
products and services that are used together. When the price of one falls, the demand for the other increases (and conversely.)
Define change in demand.
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.
Define supply.
a schedule showing the amounts of a good or service that sellers (or a seller) will offer at various prices during some period.
What is the law of supply?
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.
Define supply curve.
a curve illustrating supply.
What are determinants of supply?
factors other than price that determine the quantities supplied of a good or service.
Define change in supply.
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.
Define surplus.
the amount by which the quantity supplied of a product exceeds the quantity demanded at a specific (above-equilibrium) price.
Define shortage.
the amount by which the quantity demanded of a product exceeds the quantity supplied at a particular (below-equilibrium) price.
What is the equilibrium price?
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.
What is the equilibrium quantity?
(1)the quantity demanded and supplied at the equilibrium price in a competitive market; (2) the profit-maximizing output of a firm.
What is the rationing function of prices?
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.
What is a price ceiling?
a legally established maximum price for a good or service.
What is a price floor?
a legally determined price above the equilibrium price.