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Terms in this set (35)
Voluntary Exchange
A transaction in which a buyer and a seller exersise their economic freedomby working out their own terms of exchange.
Law of Demand
Economic rule stating that the quantity demanded and the price move opposite directions.
Diminishing Marginal Utility
Rule stating that the additional satisfaction of a gets from purchasing one more unit of a product will lessen with each additional unit purchased.
Real Income Effect
Economic rule stating that individuals cannot keep buying the same quantity of a product if their income stays the same.
Substitution Effect
Economic rule stating that if two items satisfy the same need and the price of one rises, people will buy more of the other product.
Demand Curve
Downwardsloping line that shows in graph form the quantities demanded at each possible price.
Price Elasticity of Demand
Economic concept that deals with how much demand varies according to changes in price.
Elasticity
Economic concept that deals with how much demand varies according to changes in price.
Elastic Demand
Situation in which a given rise or fall in a product's price greatly affects the amount that people are willing to buy.
Inelastic Demand
Situation in which a product's price change has little impact on the little impact on the quality demanded my consumers.
Complementary Good
A product often used with another product.
Demand
The amount of a good or service that consumers are able and willing to buy at various possible during a specified time period.
Supply
The amount of a good or service that producers are able and willing to sell at prices during a specified time.
Market
The process of freely exchanging goods and services between buyers and sellers.
Quantity Demanded
The amount of a good or service that a consumer is willing and able to purchase at a specific price.
Utility
The ability of any good or service to satisfy consumer wants.
Marginal Utility
An additional amount of satisfaction.
Demand Schedule
Table showing quantity demanded at different possible prices.
Law of Supply
Economic rule stating that price and quantity supplied move in the same direction.
Quantity Supplied
The amount of a good of service that a producer is willing and able to supply at a specific price.
Supply Schedule
Table showing quantities supplied at different possible prices.
Supply Curve
Upward-sloping line that shows in graph form the quantities supplied at each possible price.
Technology
The use of science to develop new products and new methods for producing and distributing goods and services.
Equilibrium Price
The price at which the amount producers are willing to supply is equal to the amount consumers are willing to buy.
Shortage
Situation in which the quantity demanded is greater than the quantity supplied at quantity supplied.
Surplus
Situation in which quantity supplied is greater than quantity demanded at the current price.
Price Ceiling
A legal maximum price that may be charged for a particular good or service.
Rationing
The distribution of goods and services based on something other than price.
Black Market
"Underground" or illegal market in which goods are traded at prices above their legal maximum prices or in which illegal goods are sold.
Price Floor
A legal minimum price below which a good or service may not be sold.
Determinants of Demand
1. Changes in population
2. Changes in income
3. Peoples tastes and preferences
4. Substitutes
5. Complementary goods
Law of Diminishing Returns
Economic rule stating that as more units of a factor of production are added to other factors of production, after somepoint total output continues to increase but at a diminishing rate
Determinants of Supply
1. Price of inputs
2. Technology
3. Number of firms in the industry
4. Taxes
Shift in Equilibrium Price
If there is a shift in demand (whole demand curve shifts) or a shift in supply (whole supply curve shifts), there will be a new equilibrium price.
Forces Underlying Supply and Demand
1. Demand Forces-people's income and prefences
2. Supply Forces-ability of suppliers to produce, the profit incentive & cost of production
Principles of Economics
1st EditionTimothy Taylor
895 solutions
Principles of Economics 2e
2nd EditionDavid Shapiro, Steven Greenlaw, Timoth Taylor
Essentials of Economics
2nd EditionPaul Krugman
116 solutions
Principles of Economics
6th EditionN. Gregory Mankiw
900 solutions
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