Study Guide for Test 2 (Chapters 4-5) Flashcards
1
Q
Marginal Utility
A
- The amount of satisfaction that results from a one unit increase of a product tends to be smaller with each additional unit
2
Q
Value in Exchange
A
- What a particular good is worth in exchange for some other good
3
Q
Total Utility
A
- The total amount of satisfaction received from possessing a particular amount of a good
4
Q
Value in Use
A
- Value that is directly related to the benefits their owners receive through their use
5
Q
Substitute Good
A
- A good capable of being used in place of another
6
Q
Durable Good
A
- Goods that are expected to last at least three years
7
Q
Complementary Good
A
- A good often used in conjunction with another
8
Q
Nondurable Good
A
- Goods that have a life expectancy of less than three years
9
Q
Substitution Effect
A
- Indicates that people tend to substitute less expensive goods for ones whose prices have risen
10
Q
Income Effect
A
- 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
11
Q
Supply
A
- The relationship between a good’s price and the amount that producers are willing to provide for consumers
12
Q
Demand
A
- The relationship between a good’s price an the amount that people are willing to buy
13
Q
Consumers
A
- People who use goods
14
Q
Profit Motive
A
- The desire to work to improve one’s economic situation
15
Q
Demand Curve
A
- A graphic representation of the quantity of goods purchased at different prices
16
Q
Inferior Goods
A
- Demand for these items decreases as consumer’s incomes increase and vice versa
17
Q
Price Floor
A
- Price levels set above the equilibrium prices
18
Q
Public Sector
A
- Controlled by national, state, and local governments
19
Q
Elastic
A
- If the price goes up, people will buy less
- Price Elasticity of Demand
20
Q
Inelastic
A
- If consumers pay really high prices on a particular commodity because they feel there are no substitutes
21
Q
Income Effect
A
- Says 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
22
Q
Depreciation
A
- The diminishing of the value of goods that is caused by wear and time
23
Q
Equilibrium
A
- The point at which quantity demanded and quantity supplied are equal
24
Q
Equity
A
- The total value of a business minus any liabilities
25
Market
- A mechanism that allows people to exchange goods
26
Market Price
- Prices at which goods can be sold in an open market with many potential sellers and buyers
27
Market Signals
- Signs that are used by consumers an producers to determine how much of a good to buy or sell at a given price or time
28
Opportunity Costs
- The value of the best alternative that is foregone when a different alternative is taken
29
Price
- The amount of money that a buyer pays a seller for a good
30
Profit
- The excess of the total revenue paid by the buyers for goods over the seller's total expense of producing these goods
31
Shortage
- A situation in which the quantity demanded exceeds the quantity supplied at a given price
32
Surplus
- A situation in which the quantity supplied exceed the quantity demanded at a given price
33
Law of Demand`
- The free market principle stating that as 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
34
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
35
Demand Schedule
- A list of numbers that compares price with quantity demanded
36
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
37
Normal Good
- A good whose demand is directly related to the consumer's incomes
38
Subsidies
- Monetary assistance given given by government to a business to encourage production
39
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
40
Private Sector
- That part of an economy controlled by private individuals, businesses, and organizations
41
Traditional Economy
- An economic system in which decisions involving the production, distribution, and consumption of goods are based upon custom, heredity, and cause
42
Black Market
- An illegal, underground system for the exchange of goods developed to avoid governmental regulations
43
Command Economy
- Economic system in which a centralized authority controls production, distribution, and consumption of goods, as well as savings, investments, and prices
- Also called a planned or directed economy
44
Diminishing Marginal Utility
- The principle stating that as one's supply of a specific good or service increases, the satisfaction derived from each additional unit tends to decrease
45
Free Enterprise Economy
- System in which people are free to make their own economic choices
- Also called market economy
46
Five Factors of Changes in Demand
1. Tastes and Preferences
2. Income
3. Population
4. Prices of Related Goods
5. Consumer Expectations
47
Six Factors of Changes in Supply
1. Technology
2. Resource Prices
3. Prices of Relate Goods
4. Number of Sellers
5. Producer Expectations
6. Government Taxes, Subsidies, and Regulations
48
Do businesses in the free market economy make big profits?
- NO
- Competition
- Other Costs
