Ch.4 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 that results from a one-unit increase of a product
total utility
the total amount of satisfaction received from possessing a certain amount of a particular good
law of demand
the free market principle stating that as a the price of a good increases, the quantity demanded decreases, assuming 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 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 incomes
inferior good
a good whose demand decreases and 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
subsidies
monetary assistance given by government to business to encourage production
equilibrium
the point at which quantity demanded and quantity supplied 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 level set below the equilibrium price
price floor
a limit that the government places on how low a producer may charge for his product; price level set above the equilibrium price.
value in use
value that is directly related to the benefits their owners receive through their use
the dedham farmer and the boston merchant bargain
in this story, a dedham farmer with wooden boards that don’t hold that much value to him traded with a man who owned 50 barrels of molasses and was in need of woods to expand his 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 good we already have
value in exchange
what a particular good is worth in exchange for some other good; alos known as trading value
price
the amount of money that a buyer pays a seller for a good
diminishing marginal utility
the principle stating that as one’s supply of a specifific good or services increases, the satisfaction derived from each additonal unit decreases
total utility
the overall utility a good has to someone
marginal and total utility EX
Marginal: satisfaction from an individual hamburger
total: combined satisfaction of multiple hamburgers
income effect
the principle stating that when the price of a good falls, consumers tend to buy more of that good or of other items because they can do so without giving up anything; when prices rise, consumers can no longer buy as much as they did before, which has the same effect as if their income were to be reduce
for everyone there is a point at which price becomes
the decisive consideration, the point at which a consumer alters his economic behavior
quantity demanded
the quantity of a good that consumers will buy at a given price per unit within a specified amount of time
substitution effect
the principle stating that people tend to substitute less expensive goods for goods whose prices have risen
change in demand
a shift in the demand curve cause by changes in 5 key factors: in taste and preferences, income, population, prices of related goods, or consumer expectations
income
chnages in consumer incomes result in normal goods (direct relationship) and inferior goods (inverse)
population
includes population growth/decline and a shift in age structure
prices of related goods
there are subsittute and complementary goods when their prices change it affects demand shifts
consumer expectations
what consumers expect will happen in the future
change in quantity demanded
movement from one point to another along a fixed demand curve. only factor that can cause this is price changes
quantity supplied
the quantity of a good that producers will supply at a given price per unit within a specificized amount of time
change in supply
a shift in the supply curve caused by changes in technology, resource prices, prices of related goods, number of sellers, producer expectations, or government taxes, subsides, and regulations
technology
tech improvements have the largest influence on the amount of goods that producers are able to supply. More tech advances means less money to produce a good.
resource prices
the amount that producers have to pay to obtain the resources they need determines the supply of a good.
prices of related goods
Example: if prices that consumers were willing to pay for motorized scooters fell, manufacturers would produce less of that and make substitute goods such as bikes which would increase the supply of bikes.
number of sellers
an increase in the number of businesses who make a good increases the supply of a good. A decrease in those businesses would decrease the supply.
producer expectations
supply is affected by the expectation producer have about the future pricing of their goods
governement taxes, subsides and regulations
he roles that government plays in the supply of goods made available to the public is in direct proportion to how much the government is involved in the market. The more taxes and regulations that the government enforces, the fewer goods businesses can supply. Sometimes governments give subsidies.
change in quantity supplied
movement form one point to another along a fixed supply curve. caused by change in price within an existing supply
equilibrium is the point
that suppliers try to find in order to know what price to place on their goods and how many goods to produce at that price.
Without reliable information on the estimates of the demand, supply, and equilibrium price, there can be a shortage or a surplus
as the supply and demand of a good shift
the equilibrium price of that good also shifts
price elasticity of demand
if prices go up, people will buy less
elasticity
the responsiveness of the quantity supplied or the quantity demanded to a change in a good’s price
a major reason why the demand for most goods is elastic
the availability of substitutes
inelastic
demand for a good is inelastic when consumers will pay very high price for a particular commodity because they feel there are no substitutes
the result of price fixing by governments
is either overproduction or underproduction of goods which damages economies.
price ceilings result in
shortages
price floors result in
surpluses
the high lord of the market place
Illustrates that a central power controlling the market place results in an unsuccessful economy.
efficient production and prices are based on
the free choices of millions of people, functioning both as suppliers and demanders, working together with the framework of a free market economy
gov control example
Illustrates that a central power controlling the market place results in an unsuccessful economy.
