4 MT Flashcards
market price
the price at which goods can be sold in an open market with many potential sellers and buyers
marginal utility
the amount of satisfaction resulting from a one unit increase of a product
total utility
the total amount of satisfaction received form possessing a certain amount of a good
law of demand
the free market principle stating that as the price of a good increases the quantity demanded decreases, assuming all other factors remain equal; as the price of a good falls, the quantity demanded rises
law of supply
the free market principle stating that as the price of a good increases the quantity supplied also increases, assuming all other factors remain equal; as the price of a good falls, the quantity supplied also falls
demand schedule
a list of numbers that compares price with quantity demanded
supply schedule
a list of numbers that compares price with quantity
demand curve
a graphic representation of the quantity of goods purchased at different prices within a specified amount of time; slopes downward and to the right
supply curve
a graphic representation of the quantity of goods supplied at different prices within a specified amount of time; slopes upward and to the right
normal good
a good whose demand is directly related to consumer’s incomes
inferior good
a good whose demand decreases when consumer incomes increase
substitute good
a good capable of being used in place of another good
complementary good
a good often used in conjunction with another
subsides
monetary assistance given by government to businesses to encourage production
equilibrium
the point at which quantity supplied and quantity demanded are equal
shortage
a situation in which the quantity demanded exceeds the quantity supplied at a given price
surplus
a situation in which the quantity supplied exceeds the quantity demanded at a given price
price ceiling
a limit that the government places on how high a producer may charge for his product; price set below equilibrium price
price floor
a limit that the government places on how low a producer may charge for his product; price set above equilibrium price
value in use
value that is directly related to the benefits their owners receive through their use
The Dedham Farmer and Boston Merchant Bargain
In this story, a Dedham farmer with wooden boards that don’t hold much value to him traded with a man who owned 50 barrels of molasses and was in need of wood to expand hi warehouse. This story illustrates the idea that we place values on goods based upon our personal preferences and circumstances, as well as how much of the goods we already have
value in exchange
what a particular good is worth in exchange for some other good; also known as trading value
to know if demand for an item is high or low
we must be able to show the amount bought over a length of time
changes in demand
- tastes and preferences
- income
- population
- prices of related goods
- consumer expectations
changes in supply
- technology
- resource prices
- prices of related goods
- number of sellers
- producer expectation
- government taxes, subsides, and regulations
demand is elastic (price elasticity of demand)
if prices go up, people will buy less
elasticity
the responsiveness of the quantity supplied or the quantity demanded to change in a good’s price
inelastic
demand for a good is inelastic when consumers will pay very high price for a particular commodity because they feel there are no other substitutes
substitution effect
the principle stating that people tend to substitute less expensive goods for goods whose prices have risen
high lord of the market place
illustrates that a central power controlling the market place results in an unsuccessful economy
