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76 Cards in this Set
- Front
- Back
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quantity demanded
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the amount of any good, service, or resource that people are willing and able to buy during a specified period at a specified price
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The Law of Demand
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Other things remaining the same, if the price of a good rises, the quantity demanded of that good decreases; and if the price of a good falls, the quantity demanded of that good increases.
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Demand
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the relationship between the quanitity demanded and the price of a good when all other influences on buying plans remain the same.
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demand schedule
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a list of the quantities demanded at each different price when all the other influences on buying plans remain the same
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demand curve
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a graph of the relationship between the quantity demanded of a good and its price when all other influences on buying plans remain the same.
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market demand
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the sum of the demands of all the buyers in the market
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change in the quantity demanded
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a change in the quantity of a good that people plan to buy that results from a change in the price of the good
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change in demand
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a change in the quantity that people plan to buy when any influences on buying plans other than the price of the good changes
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main influences on buying plans that change demand
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prices of related goods
income expectations number of buyers preferences |
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substitute
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a good that can be consumed in the place of another good.
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complement
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a good that is consumed with another good
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normal good
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a good for which demand increases when income increases
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inferior good
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a good for which demand decreases when income increases
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quantity supplied
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the amount of any good, service, or resource that people are willing and able to sell during a specified period at a specified price
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The Law of Supply
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other things remaining the same, if the price of a good rises, the quantity supplied of that good increases; and if the price of a good falls, the quantity supplied of that good decreases
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supply
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the relationship between the quantity supplied and the price of a good when all other influences on selling plans remain the same
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supply schedule
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a list of the quantities supplied at eash different price when all the other influences on selling plans remain the same
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supply curve
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a graph of the relationship between the quantity supplied of a good and its price when all the other influences on selling plans remain the same
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market supply
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the sum of the supplies of all the sellers in the market
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change in the quantity supplied
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a change in the quantity of a good that suppliers plan to sell that results from a change in the price of the good
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change in supply
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a change in the quantity that suppliers plan to sell that results from a change in the price of the good
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main influences on selling plans that change supply
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prices of related goods
prices of resources and other inputs expectations number of sellers productivity |
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change in supply
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a change in the quantity that suppliers plan to sell when any influence other than the price of the good changes
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substitute in production
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a good that can be produced in place of another good
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complement in production
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a good that is produced along with another good
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market equilibrium
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when the quantity demanded equals the quantity supplied-when buyers and sellers plans are consistent.
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equilibrium price
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the price at which the quantity demanded equals the quantity supplied
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equilibrium quantity
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the quantity bought and sold at the equilibrium price
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surplus or excess supply
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a situation in which the quantity supplied exceeds the quantity demanded
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shortage or excess demand
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a situation in which the quantity demanded exceeds the quantity supplied
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The law of market forces
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when there is a shortage, the price rises, and when there is a surplus, the price falls
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An increase in demand...
(shift) (price) (quantity supplied) (equilibrium quantity) |
shifts the demand curve to the right
raises the price increases the quantity supplied increases the equilibrium quantity |
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A decrease in demand...
(shift) (price) (quantity supplied) (equilibrium quantity) |
shifts the demand curve to the left
lowers the price decreases the quantity supplied decreases the equilibrium quantity |
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An increase in supply...
(shift) (price) (quantity demanded) (equilibrium quantity) |
shifts the supply curve right
lowers the price increases the quantity demanded increases the equilibrium quantity |
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A decrease in supply...
(shift) (price) (quantity demanded) (equilibrium quantity) |
shifts the supply curve left
raises the price decreases the quantity demanded decreases the equilibrium quantity |
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Price elasticity of demand
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a measure of the extent to which the quantity demanded of a good changes when the price of good changes and all other influences on buyers' plans remain the same
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percentage change in price
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new price-initial price
________________________ X 100 initial price |
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percentage change in quantity
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new quantity-initial quantity
_____________________________ X100 (new quantity + initial quantity)/2 |
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elastic demand
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when the percentage change in the quantity demanded exceeds the percentage change in price
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unit elastic demand
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when the percentage change in the quantity demanded equals the percentage change in price
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inelastic demand
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when the percentage change in the quantity demanded is less than the percentage change in price
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perfectly elastic demand
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when the quantity demanded changes by a very large percentage in response to an almost zero percentage change in price
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perfectly inelastic demand
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when the quantity demanded remains constant as the price changes
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influences on price elasticity of demand
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substitution effects
income effects |
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luxury v. necessity
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luxury-elastic
necessity-inelastic |
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narrowness of definition
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narrowly defined good- elastic
broad good- inelastic |
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time elapsed since price change
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more time-elastic
less time-inelastic |
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income effects
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big expense-elastic
small expense-inelastic |
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price elasticity of demand equation
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percentage change in quantity demanded
________________________________________ percentage change in price |
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elasticity rules
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greater than 1=elastic
equals 1=unit elastic less than 1=inelastic |
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total revenue
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the total revenue from the sale of a good equals the price of the good multiplied by the quantity sold
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total revenue test
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a method of estimating the price elasticity of demand by observing the change in total revenue that results from a price change (with all other influences on the quantity sold remaining unchanged)
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price elasticity of supply
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a measure of the extent to which the quantity supplied of a good changes when the price of the good changes and all other influences on sellers' plans remain the same
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perfectly elastic supply
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when the quantity supplied changes by a very large percentage in response to an almost zero percentage change in price
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elastic supply
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when the percentage change in the quantity supplied exceeds the percentage change in price
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unit elastic supply
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when the percentage change in the quantity supplied equals the percentage change in price
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inelastic supply
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when the percentage change in the quantity supplied is less than the percentage change in price
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perfectly inelastic supply
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when the quantity supplied remains the same as the price changes
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the two main influences on price elasticity of supply
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production possibilities
storage possibilities |
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price elasticity of supply equation
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percentage change in quantity supplied
_______________________________________ percentage change in price |
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cross elasticity of demand
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a measure of the extent to which the demand for a good changes when the price of a substitute or complement changes, other things remaining the same
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cross elasticity of demand equation
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percentage change in quantity demanded of a good
__________________________________________________ percentage change in price of one of its substitutes or complements substitute=positive complement=negative |
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Income elasticity of demand
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a measure of the extent to which the demand for a good changes when income changes, other things remaining the same
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income elasticity of demand equation
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percentage change in quantity demanded
__________________________________________________ percentage change in income greater than 1=income elastic normal good between zero and 1=income inelastic normal good less than zero=inferior good |
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total revenue equation
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price X quantity sold
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shortcut
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(1) (P
(___) (__) (demand slope) (Q) slope= change in P ___________ change in quantity demanded |
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consumer surplus
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measuring how much happier consumers are for engaging in trade in a market
-difference between marginal benefit and the price you pay |
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producer surplus
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how much better off suppliers are from selling in this market
-difference between the price received and the marginal cost |
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total surplus
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the amount of happiness earned by society because of trade in the market
TS=CS+PS |
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cost
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what a seller must give up to produce the good
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price
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what a seller receives when the good is sold
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obstacles to efficiency
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-price ceilings and floors and production quotas
-taxes and subsidies -externalities -public goods and common resources -monopoly |
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externality
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a cost or benefit that arises from a production activity that falls on someone other than the producer
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utilitarianism
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a principle that states that we should strive to achieve the greatest happiness for the greatest number
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big tradeoff
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a tradeoff between efficiency and fairness that recognizes the cost of making income transfers
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tax effectiveness equation
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actual tax
_____________ X100 expected tax |
