Stock

Normal Goods

Goods consumers demand more of as income increases.

Inferior Goods

Goods consumers demand more of as income decreases.

Complementary Goods

Two goods bought and used together.

Substitutionary Goods

Goods used in place of each other.

What happens to quantity demanded when prices rise?

It decreases.

Supply

The amount of goods available.

Law of Supply

A producer wants to supply more if prices rise.

What is the greatest factor affecting elasticity in supply?

Time horizon.

Factors that affect changes in supply

Numbers of sellers, expectations, technology, input prices.

Surplus

An excess of goods or services.

Change in Quantity Supplied vs. Change in Supply

Quantity supplied refers to how much of a good is offered for sale at a specific price, while supply refers to the total amount of goods available.

Price Ceiling

A legal maximum price that can be charged.

What does a price ceiling create?

It creates a shortage.

Fixed Cost

Costs that must be paid regardless of production, such as rent.

Variable Costs

Costs that may change with the amount produced, such as electric bills and raw materials.

Price Floor

A legal minimum price.

What does a price floor create?

It creates a surplus.

Import Restrictions

Reduce supply.

Marginal Product of Labor

Change in output per worker.

Total Cost

Fixed plus variable cost.

Profit

Total revenue minus total cost.

Factors affecting elasticity of Demand

Available substitutes, time horizon, necessities vs luxuries, changes over time, definition of the market, percentage of income spent.