Test 2 Flashcards
Market (Under Capitalism)
A group of buyers and sellers of a particular good or service. The buyers determine the demand for the product
The sellers determine the supply of the product
Competitive market
A market in which there are so many buyers and sellers that each has very little impact on the market price
Perfectly Competitive
The goods offered for sale are all exactly the same
Buyers and sellers are so numerous that no one person can affect the market
Demand
The schedule of the quantity of a product which consumers are both willing and able to
buy at various prices
The Law of Demand
The quantity demanded of a good falls when the price rises
Raised prices, demand goes down
Demand Schedule
A table that shows the relationship between the price of a good and the
quantity demanded
Variables That Influence Demand?
- Income
- Price of related goods
- Taste (what people like)
- Expectations
- Number of Buyers
Supply
The schedule of the quantity of a product which producers are both willing and able to
produce and make available for sale at various prices
The Law of Supply
The quantity supplied of a good rises when the price of a good rises
Supply Schedule
A table that shows the relationship between the price of a good and the quantity supplied
Supply Curve
A graph of the relationship between the price of a good and the quantity supplied
Variables That Influence Supply
- Input Prices
- Technology
- Expectations
- Number of Sellers
Input Prices
The cost of producing the product
3 Situations That Are Represented on the Supply and Demand Graph
- Equilibrium
- Surplus
- Shortage
Equilibrium
A situation in which the market price has reached the level at which quantity
supplied equals quantity demand
Surplus
A situation in which quantity supplied is greater than quantity demanded
Shortage
A situation in which quantity demanded is greater than quantity supplied
Types of Goods
- Normal Goods
- Inferior Goods
- Substitute Goods
- Complimentary Goods
- Independent Goods
Normal Goods
Goods that people buy more of as their income increases
Clothing
Inferior Goods
Goods that people buy less of as their income increases
Spam
Substitute Goods
Two or more products that can be used for the same purpose
Fan and Air Conditioner
Complimentary Goods
Products that are normally used together
Shoes and Shoelaces
Independent Goods
Products that have no direct relationship with each other
Utility
The ability of a product or service to satisfy some consumer want
The Law of Diminishing Marginal Utilities
Within a limited time period, as an individual consumes
additional units of a product, that person will receive less additional satisfaction from the unit consumed
Elasticity of Demand
Measure of how responsive consumers are with a change in price
How do you compute the Price Elasticity of Demand?
Percentage change in quantity/
Percentage change in price
What is considered elastic?
If the coefficient is more than 1
What is considered inelastic?
If the coefficient is less than 1
What is considered unitary?
If the coefficient is equal to 1
Capital Assumption Allowance
That part of a given year’s production which is necessary to replace capital goods destroyed in generating that years production
Cross Price Elasticity of Demand
The measure of how the quantity demanded of one good changes as the price of another good changes
How to find Cross Price Elasticity of Demand
Percentage of the change of the quantity demanded of good #1/
Percentage of the change of quantity demanded of good #2
Options when finding Cross Price Elasticity of Demand
It will either be:
- Positive (substitute goods)
- Negative (complementary goods)
Income Elasticity of Demand
A measure of how much the quantity demanded of a good responds to a change in consumers income
How to find Income Elasticity of Demand
Percentage in the change of the quantity demanded/
Percentage in the change of income
Options when finding Income Elasticity of Demand
It will either be:
- Positive (normal goods)
- Negative (substitute goods)
Price Elasticity of Supply
Measures how much the quantity supplied responds to the changes in
price
How to find the Price Elasticity of Supply
Percentage in the change of quantity supplied/
Percentage in the change of price
Options when finding the Price Elasticity of Supply
It will either be:
- Positive (elastic)
- Negative (inelastic)
