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21 Cards in this Set

  • Front
  • Back
Demand shows what in terms of consumers?
Their willingness and ability to purchase a product at each possible price level during a spicified period of time
If specific time (like 'per week' is not stated?
Cannot tell whether demand for product is large or small
Law of Demand States (see graph)
As price level falls, Quantity Demanded Increases and Vice Versa if price level rises
Law of diminishing marginal utility states?
Buyer of product will derive less utility from each successive unit of the product consumed
Income effect?
Lower price increases Purchasing power of buyer's money income.
Vice Versa with higher price
Substitution effect?
At lower price, buyers have incentive to substitute less expensive product for similar products that are more expensive.
What are the 5 determinants of demand?
Tastes (Preferences)
Prices of Related Goods
Number of Buyers
Normal Goods?
"Superior Goods" whose demand varies DIRECTLY with money income. (i.e electronic equipment)
Inferior Goods?
Goods whose demand varies INDIRECTLY with money income. (i.e Used clothing)
Substitute Good?
When two products are substitutes, the price of one and demand for other move in same direction.
Complementary Good?
When two products are complementary, the price of one and demand for other move INVERSELY.
Unrelated Goods =?
Independent Goods
Change in Demand
Change in Quantity Demanded
Shift in entire curve; caused by 5 determinants
Movement along curve; caused by movements in price level
Supply shows what in terms of producers?
Their willingness and ability to make a product at each possible price level during a spicified period of time
Law of Supply states?
As price level rises, the quantity supplied rises.
As price level drops, the quantity supplied drops.
What is 'Price level' to a supplier?
Price equals REVENUE, which means when price rises, so will revenue if increase supply.
What are the 6 determinants of supply?
Resource Prices
Taxes and Subsidies
Prices of Other Goods
Price Expectations
Number of Sellers
Rationing Function of Prices?
Ability of competitive forces of supply and demand to always produce a point of equilibrium quanity and price
Price Ceiling?
Maximum legal price a seller may charge for a product or service
Price Floor
Minimum Price Fixed by government.
Government-controlled Prices in form of ceilings and floors do what 3 things?
1) Distort Resource Allocations
2) Stifle Rationing Function of Prices
3) Cause Negative Side Effects