Microeconomics Online Chapter 3 Vocabulary

Front 1

The Law of Demand

Back 1

as the price of a good or service rises, the quantity demanded by buyers will fall.

Two effects explain this:
Substitution Effect
Income Effect

Front 2

Substitution Effect

Back 2

If the price of a product rises, buyers will buy less and purchase a substitution instead.

Front 3

Income Effect

Back 3

A rise in the price of a product is like a decrease in your income. If you continue to purchase the same amount, you will have less money to buy other products.

Front 4

The Law of Supply

Back 4

As the price of a good or service rises, the quantity supplied by sellers will rise.

Front 5

The Law of Diminishing Returns

Back 5

With some incomes held fixed, the returns to an input will diminish as more of it is added.

Front 6

Demand Curve Model:a price increase

Back 6

Demand Curve Model: a price decrease

Front 7

Supply Curve Model: an increase in the quantity supplied

Back 7

Supply Curve Model: a dedrease in the quantity supplied.

Front 8

Equilibrium occurs at the price in which the quantity demanded by buyers is equal to the quantity supplied by sellers.

Back 8

Equilibrium

Front 9

If there is an increase in demand caused by a factor other than price, the demand curve will shift to the right.

Back 9

Increase in Demand

Front 10

If there is a decrease in demand caused by a factor other than price, the demand curve will shift to the left.

Back 10

Decrease in Demand

Front 11

Nonprice determinant that shifts the demand curve (of 10):
1 Product Innovation

Back 11

Demand increases because of improvements or changes in the design of a product.

Front 12

Nonprice determinant that shifts the demand curve (of 10):
2 Income

Back 12

Demand increases or decreases because the incomes of buyers rise or fall.

Front 13

Nonprice determinant that shifts the demand curve (of 10):
3 Advertising

Back 13

Sellers influence customers to buy the product.

Front 14

Nonprice determinant that shifts the demand curve (of 10):
4 Fads

Back 14

Brief popularity of a product causes demand to increase significantly for a short time period.

Front 15

Nonprice determinant that shifts the demand curve (of 10):
5 Quality

Back 15

A product defect or discovery that it could be harmful or unsafe changes demand.

Front 16

Nonprice determinant that shifts the demand curve (of 10):
6 Trends or Preferences

Back 16

Unlike a fad, an increase in demand for a product continues over time.

Front 17

Nonprice determinant that shifts the demand curve (of 10):
7 Number of Buyers

Back 17

A change in the numbers of buyers will change the demand for a good or service.

Front 18

Nonprice determinant that shifts the demand curve (of 10):
8 Expectations

Back 18

If buyers expect a change in design or performance, they may delay purchases.

Front 19

Nonprice determinant that shifts the demand curve (of 10):
9 Weather

Back 19

A snowy winter increases demand for snowblowers.

Front 20

Nonprice determinant that shifts the demand curve (of 10):
10 Other Products

Back 20

Substitutes are products that are used in place of other products.

Front 21

Nonprice determinant that shifts the demand curve (of 10):
11 Legislation

Back 21

A new law prohibiting, legalizing, or mandating a product will change demand.

Front 22

If there is an increase in supply caused by a factor other than price, the supply curve will shift to the right.

Back 22

Increase in Supply

Front 23

If there is a decrease in supply caused by a factor other than price, the supply curve will shift to the left.

Back 23

Decrease in supply.

Front 24

Nonprice determinants that shift the supply curve:
Prices of other products.

Back 24

Assume a seller uses its resources to produce two products; if one product rises in price, the supplier will produce more of it and less of the other product.

Front 25

Nonprice determinants that shift the supply curve:
Technology

Back 25

Using computers, software, and robots, producers are able to produce more output in the same amount of time or at a lower cost per unit.

Front 26

Nonprice determinants that shift the supply curve:
Number of Sellers

Back 26

Higher trade barriers such as tariffs or import taxes will reduce the number of foreign sellers in the market. Lower trade barriers will shift the supply curves to the right

Front 27

Nonprice determinants that shift the supply curve:
Input or Resource Prices

Back 27

A rise in the price of inputs paid such as wages paid to labor will shift the supply curve to the left.

Front 28

Nonprice determinants that shift the supply curve:
Subsidies and Taxes

Back 28

Government subsidies or payments to producers lower the costs of production shifting the production curve to the left.

Front 29

Nonprice determinants that shift the supply curve:
Government Regulations

Back 29

The deregulation of the airlines enabled new airlines to enter the market shifting the supply curve to the right.

Front 30

Nonprice determinants that shift the supply curve:
Expectations

Back 30

Producers such as farmers may anticipate that corn prices will soon fall so they sell their stored inventories today causing the supply curve to shift to the right.

Front 31

Nonprice determinants that shift the supply curve:
Weather

Back 31

A drought, unusual coldness, or perfect conditions will shift the supply curves of food products.

Front 32

What is the effect on the cream cheese market if bagel prices fall?

Back 32

The products are Compliments.

Front 33

What is the effect on the market for prescription drugs as the baby boomers age?

Back 33

More buyers enter market.

Front 34

What is the effect on the market for prescription drugs as the baby boomers age?

Back 34

More buyers enter market.

Front 35

What is the effect on the market for milk if the price is set above equilibrium?

Back 35

Price floor. A price floor will create a surplus of a good or service.

Front 36

What is the effect on the market for soybeans if corn prices rise?

Back 36

.

Front 37

What is the effect on the market for organic food if more farms produce it?

Back 37

.

Front 38

What is the effect on the market for donuts if bagle prices rise?

Back 38

Substitute Products.

Front 39

What is the effect on the market for organic food if more farms produce it?

Back 39

.

Front 40

Price Ceiling: When the price of an object is set below market equilibrium, it is called a price ceiling. This means that the product cannot be sold above the celilng price.

Back 40

A Price ceiling will cause a shortage of a good or service.

Front 41

Externalities

Back 41

Costs and benefits that are not internalized.

Front 42

Pollution is a negative externality.

Back 42

This is why the government must intervene to ensure that the pollution costs are internalized.

Front 43

Direct Controls

Back 43

Government regulators set maximum levels for pollution.

Front 44

Public Goods.

Back 44

Public goods are provided by the government because it is in societies best interest.
Two types: Pure Public Goods and Near Public Goods.

Front 45

Pure Public Goods

Back 45

Pure public goods must be provided by the government because of the free-rider problem. If you do not pay for it, you cannot be excluded from consuming it.
Examples: national defense, clean air.

Front 46

Near Public Goods.

Back 46

Near public goods are not pure because the private sector or market can supply them. However some people would be excluded because they could not afford to pay for them. It is considered in society's best interest that everyone should have access to these goods.
Examples: Education, public health measures, infrastructure.