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55 Cards in this Set

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  • Back
Law of Demand
when a good's price is lower, consumers will buy more of it (and vice versa)
Substitution Effect
when consumers react to an increase in a good's price by consuming less of that good and more of other goods
Income Effect
the change in consumption resulting from a change in real income
Demand
to have demand for a good you must be willing and able to buy it at the specified price
Demand Schedule
a table that lists the quantity of a good a person will buy at each different price
Market Demand Schedule
a table that lists the quantity of a good all consumers in a market will buy at each different price
Demand Curve
A graphic representation of a demand schedule
From left, to right price always decreases and the quantity demanded always increases (always goes down)
Ceteris parabis
"all other things held constant"-used when only price changes
Change in Demand
when ceteris parabis doesn't hold true, the entire demand curve will shift to show the change
Normal goods
a good consumers will demand more of when their incomes increase
Inferior Goods
a good that consumers demand less of when their incomes increase (ex/ used cars)
Complements
two goods that are bought and used together (ex/ rowboat and oars)
Supplements
goods used in place of one another
Elasticity of Demand
a measure of how consumers react to a change in price
Inelastic demand
demand that is not sensitive to a change in price (ex/ bypass surgery)
Elastic demand
demand that is very sensitive to changes in price
unitary elastic
the percentage change in quantity demanded is equal to the change in price (eleasticity is equal to exactly one)
Equation for Elasticity
percentage change in quantity demanded / percentage change in price

percentage change in price= (original #-new #)/original # times 100
total revenue
the total amount of money a firm receives by selling goods or services
elasticity and revenue
elastic:as price goes down, total revenue rises
inelastic:as price goes down, total revenue goes down
Law of Supply
tendency of suppliers to offer more of a good at a higher price
quantity supplied
the amount a supplier if willing and able to supply at a certain price
Supply Schedule
a chart that lists how much of a good a supplier will offer at different prices
variable
a factor that can change
market supply schedule
a chart that lists how much of a good all suppliers will offer at different prices
supply curve
a graph of the quantity of supplied of goods at different prices
market supply curve
a graph of the quantity supplied of a good by all suppliers at different prices
elasticity of supply
a measure of the way quantity supplied reacts to a change in price (key factor=time in business)
Marginal product of labor
the change in output from hiring one additional unit of labor
increasing marginal returns
a level of production in which the marginal product of labor increases as the number of workers increases
diminishing marginal returns
a level of production in which the marginal product of labor decreases as the number of workers increases
negative marginal returns
actually decreases overall output
fixed cost
a cost that doesn't change no matter how much of a good is produced (ex/ rent)
variable cost
a cost that rises or falls depending on how much is produced (ex/ costs of raw materials)
total cost
fixed costs + variable costs
marginal cost
the cost of producing one more unit of a good
marginal revenue
the additional income from selling one more unit of a good; sometimes equal to price. When marginal revenue is equal to marginal cost, this is the bets level of output
operating cost
the cost of operating a facility, such as a store or factory
subsidy
a government payment that supports a business or market
excise tax
a tax on the production or sale of a good
regulation
government intervention in a market that affects the production of a good
equilibrium
the point at which quantity demanded and quantity supplied are equal
disequilibrium
describes any price or quantity not at equilibrium; when quantity supplied is not equal to quantity demanded in a market
excess demand
when quantity demanded is more than quantity supplied (like cabbage patch dolls!)
excess supply
when quantity supplied is more than quantity demanded
price ceiling
a maximum price that can be legally charged for a good or service
price floor
a minimum price for a good or service
rent control
a price ceiling placed on rent
minimum wage
a minimum price that an employer can pay a worker for an hour of labor
surplus
a situation in which quantity supplied is greater than quantity demanded; aka excess supply
shortage
a situation in which quantity demanded is greater than quantity supplied; aka excecss demand
search costs
the financial and oppurtunity costs consumers pay when searching for a good or service (ex/ airfare to buy something in a foreign country)
supply shock
a sudden shortage of a good
rationing
a system of allocating scarce goods and services using criteria other than price
spillover costs
costs of production that affect people who have no control over how much of a good is produced (ex/ factory pollution)