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39 Cards in this Set
- Front
- Back
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Market |
The market for any good consists of all buyers or sellers of that good |
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Demand curve |
A schedule or graph showing the quantity of a good that buyers wish to buy at each price |
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Substitution effect |
The change in the quantity demanded of a good that results because buyers switch to substitutes when the price of the good changes |
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Income effect |
The change in the quantity demanded of a good that results because of a change in real income of purchasers arising from the price change |
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Buyer's reservation price |
The largest money amount the buyer would be willing to pay for a unit of good |
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Supply curve |
A curve or schedule showing the quantity of a good that sellers wish to sell at each price |
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Seller's reservation price |
The smallest money amount for which a seller would be willing to sell an additional unit, generally equal to marginal cost |
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Equilibrium |
A system is in equilibrium when there is no tendency for it to change |
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Equilibrium price & Equilibrium quantity |
The values of price and quantity for which quantity supplied and quantity demanded are equal |
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Market equilibrium |
Occurs in a market when all buyers and sellers are satisfied with their respective quantities at the market price |
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Excess supply |
The amount by which quantity supplied exceeds quantity demanded when the price of a good exceeds the equilibrium price |
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Excess demand |
The amount by which quantity demanded exceeds quantity supplied when the price of a good lies below the equilibrium price |
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Price ceiling |
A maximum allowable price, specified by law |
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Change in quantity demand |
A movement along the demand curve that occurs in response to a change in price |
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Change in demand |
A shift of the entire demand curve |
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Change in supply |
A shift of the entire supply curve |
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Change in the quantity supplied |
A movement along the supply curve that occurs in response to a change in price |
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Complements |
Two goods are complements in consumption if an increase in the price of one causes a leftward shift in the demand curve for the other (or if decrease causes a rightward shift) |
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Substitute |
Two goods are substitutes in consumption if an increase in the price of one causes a rightward shift in the demand curve for the other (or if decrease causes a leftward shift) |
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Normal good |
One whose demand curve shifts rightward when the incomes of buyers increase and leftward when the incomes of buyers decrease |
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Inferior good |
One whose demand curve shifts leftward when the incomes of buyers increase and rightward when the incomes of buyers decrease |
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Price elasticity of demand |
Percentage change in quantity demanded that results from a 1 per cent change in price |
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Elastic |
Demand is elastic with respect to price if the price elasticity of demand is greater than 1 |
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Inelastic |
Demand is inelastic with respect to price if the price elasticity of demand is less than 1 |
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Unit elastic |
Demand is unit elastic with respect to price if the price elasticity of demand equals 1 |
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Perfectly elastic demand |
Demand is perfectly elastic with respect to price if price elasticity of demand is infinite |
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Perfectly inelastic demand |
Demand is perfectly inelastic with respect to price if price elasticity of demand is zero |
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Cross-price elasticity of demand |
The percentage by which the quantity demanded of the first good changes in response to a 1 per cent change in the price of the second |
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Income elasticity of demand |
The percentage by which quantity demanded changes in response to a 1 per cent change in income |
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Price elasticity of supply |
The percentage change in quantity supplied that occurs in response to a 1 per cent change in price |
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Perfectly inelastic supply |
Supply is perfectly inelastic with respect to price if elasticity is zero |
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Perfectly elastic supply |
Supply is perfectly elastic with respect to price if elasticity of supply is infinite |
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Buyer's surplus |
The difference between the buyer's reservation price and the price he or she actually pays |
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Seller's surplus |
The difference between the price received by the seller and his or her reservation price |
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Total surplus |
The difference between the buyer's reservation price and the seller's reservation price |
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`cash on the table´
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Economic metaphor for unexploited gains from exchange |
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Socially optimal quantity |
The quantity of a good that results in the maximum possible economic surplus from producing and consuming the good |
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Economic efficiency (efficiency) |
Occurs when all goods and services are produced and consumed at their respective socially optimal levels |
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Central planning |
The a |
