EKN Chapter 5 Flashcards
Demand
A schedule showing the amounts of a good or service that buyers wish to purchase at various prices during some time period.
Law of demand
The principle that, other things equal, an increase in a product’s price will reduce the quantity of it demanded, and conversely for a decrease in price.
Diminishing marginal utility
The principle that, as a consumer increases the consumption of a good or service, the marginal utility obtained from each additional unit of the good or service decreases.
Income effect
A change in the quantity demanded for a product that results from the change in real income(purchasing power) caused by a change in the product’s price.
Substitution effect
A change in the quantity demanded of a consumer good that results from a change in its relative expensiveness caused by a change in the product’s price.
Demand curve
A curve illustrating demand.
Determinants of demand
Factors other than price that determine the quantities demanded of a good or service.
Normal goods
A good or service whose consumption increases when income increases and falls when income decreases, price remaining constant.
Inferior goods
A good or service whose consumption declines as income rises (and conversely), price remaining constant.
Complementary goods
Products and services that are used together. When the price for one falls, the demand for the other increases ( and conversely).
Substitute goods
Products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises.
Change in demand
A change in the quantity demanded of a good or service at every price; a shift of the demand curve to the loft or right.
Change in quantity demanded
A change in the amount of a product that consumers are willing and able to purchase because of a change in the product’s price.
Supply
A schedule showing the amounts of a good or service that sellers will offer at various prices during some period.
Law of supply
The principle that, other things equal, an increase in the price of a product will increase the quantity of it supplied, and conversely for a price decrease.
Supply curve
A curve illustrating supply.
Determinants of supply
Factors other than price that determine the quantities demanded of a good or service.
Change in supply
A change in the quantity supplied of a good or service ate every price; a shift of the supply curve to the left or right.
Change in quantity supplied
A change in the amount of a product that producers offer for sale because of a change in the product’s price.
Equilibrium Price
The price in a competitive market at which the quantity demanded and the quantity supplied are equal, there is neither a shortage nor a surplus, and there is no tendency for price to rise or fall.
Equilibrium quantity
The quantity demanded and supplied at the equilibrium price in a competitive market; the profit-maximizing output of a firm.
Surplus
The amount by which the quantity supplied of a product exceeds the quantity demanded at a specific ( above-equilibrium) price
Shortage
The amount by which the quantity demanded of a product exceeds the quantity supplied at at particular ( below equilibrium) price.
Productive efficiency
The production of a good in a least costly way; occurs when production takes place at the output at which average total cost is a minimum and marginal product per rand’s worth of input is the same for all inputs.
Allocative efficiency
Price ceiling
A legally established max price for a good or service.
Price floor
A legally determined min price above the equilibrium price.
Consumer surplus
The difference between the max price a consumer is willing to pay for an additional unit of a product and its market price; the triangular area below the demand curve and above the market price.
Producer surplus
The difference between the actual price a producer receives and the min acceptable price; the triangular area above the supply curve and below the market price.
Efficiency losses/ Deadweight losses
Reductions in combined consumer and producer surplus caused by an under-or over-allocation of resources to the production of a good or service.
