US Economics Unit 3 Supply and Demand

Regulations

Government rules concerning how companies conduct businesses

Taxes

Required payments of money to the government to help fund government services

Resources

Anything that is used in the production of a good or service

Marginal Costs

Additional costs of producing of a good or service

Complimentary Goods

Goods that are commonly used in conjunction with other goods

Fixed Costs

Production costs that do not change as the level of output changes

Depreciation

Lessening in value

Law of Supply

States that producers supply more goods and services when they can sell them at higher prices and fewer goods and services when they must sell them at lower prices

Overhead

A company’s total fixed costs

Elasticity of Demand

The degree to which changes in a good’s price affect the quantity demanded by consumers

Total Costs

The sum of a business’s fixed and variable production costs

Elasticity of Supply

The degree to which price changes affect the quantity supplied

Purchasing Power

The amount of money that people have available to spend on goods and services

Marginal Product

The change in output generated by adding one more unit of input

Subsidies

Payments to private businesses by the government

Total Product

All of the product a company makes in a given time period with a level of input

Substitute goods

Goods that can be used to replace the purchase of similar goods when the price rises

Law of Demand

States that an increase in a good’s price causes a decrease in the quantity demanded and that a decrease in price causes an increase in the quantity demanded

Quantity demanded

The amount of a good or service that a consumer is willing and able to buy at various possible prices during a given time period

Variable Costs

Production costs that change as the level of output changes

Quantity supplied

The quantity of goods and services that producers are willing to offer at various possible prices during a given time period

Total revenue

Refers to the total income a business receives from selling its products

Productivity

The amount of goods and services produced per unit of input

Profit

The amount of money remaining after producers have paid all of their costs

What term refers to the amount of a good or service that a producer is willing to sell at each particular price

Quantity Supplied

Give 4 examples of some costs of production

Wages and salaries, rent, utility payments, and raw materials

What is considered to be a very useful tool in showing the relationship between the price of a good or service and the quantity producers will supply

Supply schedule

What is said to exist when a small change in price causes a major change in the quantity supplied

Elastic Supply

What term refers to any increase or decrease in consumers’ purchasing power caused by a change in price

Income effect

Define quantity demanded

The amount of a good or service that a consumer is willing and able to buy at each particular price during a given time period

Identify the 2 main methods of showing the relationship between the price of a good or service and the quantity that consumers demand

Demand schedule and demand curve

What phrase describes the natural decreases in the usefulness of a good or service as more units of it are consumed

Diminishing Marginal Utility

Identify the main variable affecting the quantity demanded

Price

Explain the difference between Elastic and Inelastic demand

Elastic Demand exists when a small change in price causes a major change in the quantity demanded

Inelastic Demand is when a small change in price has little impact on the quantity demanded

Explain the difference between Elastic and Inelastic Supply

Elastic Supply exists when a small change in price causes a major change in the quantity supplied

Inelastic demand exists when a small change in price has little impact in the quantity supplied

What is one of the best ways to measure demand elasticity

Total Revenue Test

Identify the 6 main determinants of supply

Price of resources, government tools, new technologies, competition, price of related goods, and producer expectations

In addition to the laws of supply and demand, levels of production are influenced by what 2 other major considerations?

Profit and Purchasing Power

Identify the 5 main determinants of demand

Consumer tastes and preferences, market size, income, prices of related goods, consumer expectations

Identify and describe the 3 main economic concepts that help explain the law of demand

Income Effect- Any increase or decrease in consumers’ purchasing power caused by a change in price

Substitution Effect- The tendency of consumers to substitute a similar lower-priced product for another product that is relatively more expensive

Diminishing Marginal Utility - The natural decreases in the utility of a good or service as more units of it are consumed

Define quantity supplied

The amount of a good or service that a producer is willing to sell at each particular price