unit 4 study guide Flashcards
law of demand
the law of demand states that consumers buy more of a good when its price decreases and less when its price increases
substitutes
substitutes are goods used in place of one another EX: skis & snowboards
complements
complements are two goods bought and used together EX: cereal & milk
elasticity of demand
elasticity of demand is a measure of how consumers react to a change in price (cut back or increase demand due to its price)
elastic
demand for a good that is very sensitive to changes in price is elastic EX: steak
inelastic
demand for a good that consumers will buy despite a price increase is inelastic EX: insulin
what causes a shift in the demand curve? 5 answers
- increase/decrease in income
- increase/decrease in population
- consumer expectations
- advertising/consumer taste
- change in price of compliments or substitutes
law of supply
states that suppliers will offer more of a good at a higher price
elasticity of supply
a measure of the way quantity supplied reacts to a change in price (if a firm could change its output)
subsidy
a government payment that supports a business or market ( they cause the supply of a good to increase)
excise tax
is a tax on the production or sale of a good
marginal product of labor
the change in output from hiring one additional unit of labor, or worker
equilibrium
the point at which the quantity demanded & supplied come together
price ceiling
a maximum price that can be legally charged for a good ( government intervention)
price floor
a minimum price set by the government that must be paid for a good or service EX: minimum wage
what causes the supply curve to shift?
- price of resources
- number of producers
- technology
- government regulations
- future expectations
normal goods
a good consumers demand mire of when their income increases
inferior goods
a good that consumers demand less of when their income rises EX: mcdonalds
ceteris paribus
latin phrase” all other things held constant”
surplus
where quantity supplied is greater than quantity demanded
shortage
where quantity demanded is smaller than quantity supplied
fixed cost
does not change
variable cost
changes due to price in resources
total cost
fixed + variable
