Chapter 3 Flashcards
firm
An organization that transforms resources into products. Firms are the primary producing units in a market economy.
entrepreneur
A person who organizes, manages, and assumes the risks of a firm, taking a new idea or a new product and turning it into a successful business.
households
The consuming units in an economy.
product/output markets
The markets in which goods and services are exchanged
input/factor markets
The markets in which the resources used to produce goods and services are exchanged.
labor market
The input/factor market in which households supply work for wages to firms that demand labor
capital market
The input/factor market in which households supply their savings, for interest or for claims to future profits, to firms that demand funds to buy capital goods.
land market
The input/factor market in which households supply land or other real property in exchange for rent.
factors of production
The inputs into the production process. Land, labor, and capital are the three factors of production.
quantity demanded
The amount of a product that a household would buy in a given period if it could buy all it wanted at the current market price.
demand schedule
Shows how much of a given product a household would be willing to buy at different prices for a given time period.
demande curve
A graph illustrating how much of a given product a household would be willing to buy at different prices.
law of demand
The negative relationship between price and quantity demanded: Ceteris paribus, as price rises, quantity demanded decreases, vice versa.
income
The sum of all a household’s wages, salaries, profits, interest payments, rents, and other forms of earnings in a given period of time. It’s a flow measure.
wealth/net worth
The total value of what a household owns minus what is owes. It’s a stock measure.
normal goods
Goods for which demand goes up when income is higher and for which demand goes down when income is lower.
inferior goods
Goods for which demand tends to fall when income rises.
substitutes
Goods that can serve as replacements for one another; when the price of one increases, demand for the other increases.
complementary goods
Goods that “go together”; a decrease in the price of one results in an increase in the demand for the other and vice versa.
shift of a demand curve
Brought about by a change in the original conditions
movement along the demand curve
The change in quantity demanded broth about by a change in price.
supply schedule
Shows how much of a product firms will seek at alternative prices.
quantity supplied
The amount of a particular product that a firm at a particular price during a given time period
law of supply
The positive relationship between price and quantity of goods supplied.
market supply
The sum of all that is supplied each period by all producers of a single product.
price rationing
The evening out of surpluses/shortages through market price.
