Quiz 2 Material Flashcards
Circular Flow Diagram
Output Markets
The markets in which goods and services are exchanged
Factor markets
The markets in which the resources used to produce goods and services are exchanged. (eg. land, labor, capital)
Law of Demand
If other factors are held constand, the quantity of a good demanded will decrease as the price is increased and vice versa
Demand Schedule
A table of the quantity demanded of a good at different price levels
Diminishing Marginal Utility
As a person increases consumption of a product - while keeping consumption of other products constant - there is a decline in themarginal utility that person derives from consuming each additional unit of that product.
Demand Curve Properties
a) Intersects y-axis
b) Intersects x-axis
Determinants of Demand
a) Income/ Wealth
b) Tastes/Preferences
c) Price of Related goods
d) Expectations
Normal Goods
Any goods for which demand increases when income increases, and falls when income decreases while price remains constant
Inferior Goods
Goods that decrease in demand when consumer income rises
Substitutes in demand
Two goods that could be used for the same purpose. If the price of one good increases, then demand for thesubstitute is likely to rise.
Complements in demand
Goods that are typically used in conjuction with one another. When the price of one good rises, the demand for another good wil fall. However, when the price for a good decreases, the price for another good will rise.
Market Demand
The Horizontal sum of individual demands
Law of Supply
All else equal, an increase in price results in an increase in quantity supplied
Determinants of Supply
- Cost of Production
- Price of inputs
- Technology
- Price of Related Goods
- Complements in Production
- Substitutes in Production
Complements in production
Complements-in-production are two or more goods that are jointly produced using a given resource. The production of one good automatically triggers the production of another, often as a bi-product. The increase in price of one good will cause the supply of the other good to increase as well.
Substitues in production
Substitutes-in-production are two or more goods that can be produced using the same resources. Producing one good prevents sellers from using resources to produce another. As the price of one good rises, it will cause the supply of another good to fall.
Equilibrium
The condtion that exists when quantity supplied and quantity demanded are equal. At equilibrium, there is no tendency for price change.
Shortage
A shortage exists when quantity demanded exceeds quantity supplied.
Surplus
A surplus exists when quantity supplied exceeds quantity demanded. (Not to be confused with consumer surplus, producer surplus, or total surplus)
Price ceiling
A maximum price that sellers may charge for a good, usually set by the government
Price floor
A minimum price, below which exchange is not permitted
Minimum wage
a price floor set on wages
Consumer Surplus
The difference between the maximum amount a person is willing to pay for a good and its current market price
