EPF Unit 2a (Supply & Demand) & 2B (Business Organizations & Market Structures)

Demand

the desire to purchase, coupled with the power to do so.

Law of Demand

As the price of a good or service rises (or falls), the quantity of that good or service that people are willing and able to buy during a certain period of time falls (or rises).

Substitutes

Goods or services that may be used in place of another good or service; examples include tap water for bottled water (or vice versa) and movies for concerts (or vice versa).

Complements

Goods and/or services that are typically used together, such as hamburger and hamburger buns, or tennis rackets and tennis lessons.

Determinants of Demand

Factors other than the price of a good or service that change (shift) the demand schedule, causing consumers to buy more or less at every price. Factors include income, number of consumers, preferences and prices of related goods.

Supply

The amount of a good or service that producers are willing and able to offer for sale at each possible price during a given period of time.

Law of Supply

As the price of a good or service that producers are willing and able to offer for sale during a certain period of time period rises (or falls), the quantity of that good or service supplied rises (or falls).

Determinants of Supply

Factors other than the price of a good or service that change (shift) the supply schedule, causing producers to supply more or less at every price. Factors include number of producers, production costs, and technology and productivity.

Surplus

The situation that results when the quantity supplied of a product exceeds the quantity demanded. Generally happens because the price of the product is above the market equilibrium price.

shortage

The situation that results when the quantity demanded for a product exceeds the quantity supplied. Generally happens because the price of the product is below the market equilibrium price

price ceiling

A legally established maximum price that may be charged for a good or service.

price floor

A legally established minimum price that may be charged for a good or service.

Quantity Demanded

The amount of a good or service people will buy at a given price in a given period of time.

Quantity Supplied

The amount of a good or service sellers are willing and able to offer at a given price in a given period of time.

equilibrium price

The price at which the quantity demanded by buyers equals the quantity supplied by sellers; also called the market-clearing price

equilibrium quantity

The quantity demanded and quantity supplied at the equilibrium or market-clearing price.

inelastic demand

demand in which changes in price have little or no effect on the amount demanded; a similar amount of consumers will buy the product regardless of price. Examples: life-saving medication, gas, electricity

elastic demand

A situation in which consumer demand is sensitive to changes in price. Examples are: soda, cereal, clothing, electronics, cars

circular flow diagram

a diagram that views the economy as consisting of households and firms interacting in a factor market and a product market

resource (factor) market

a market in which resources/factors (land, labor, capital, entrepreneurship) are sold by households and bought by firms.

product market

A market in which products are sold by firms and bought by households.

subsidy

A government payment that supports a business or market

profit

Income received for entrepreneurial skills and risk taking, calculated by subtracting all of a firm's explicit and implicit costs from its total revenues.

business organization

is an individual or group of people that collaborate to achieve certain commercial goals

sole proprietorship

A business owned by one person who receives all the profits and is responsible for all the debts incurred by the business.

partnership

A business with two or more owners who share the firm's profits and losses.

corporation

A legal entity owned by shareholders whose liability for the firm's losses is limited to the value of the stock they own.

stock

An ownership share or shares of ownership in a corporation.

perfect competition

A market structure in which a large number of relatively small firms produce and sell identical products and in which there are no significant barriers to entry into or exit from the industry. Firms in perfect competition are price takers and in the long run will earn only normal profits. Examples: agriculture (strawberries)

monopoly

A market structure in which there is a single supplier of a good or service. Also, a firm that is the single supplier of a good or service for which there are no close substitutes. Example: De Beers diamonds.

natural monopoly

exists as a result of the high fixed costs or startup costs of operating a business in a specific industry. Examples are: Telecommunications, Electric Power Supply, Oil and Gas,
Railway and Subway Transportation, Waste Sewers and Waste Management.

monopolistic competition

A market structure in which slightly differentiated products are sold by a large number of relatively small producers, and in which the barriers to new firms entering the market are low. Examples: restaurants, salons

product differentiation

a marketing process that showcases the differences between products.

oligopoly

A market structure in which a few, relatively large firms account for all or most of the production or sales of a good or service in a particular market, and where barriers to new firms entering the market are very high. Some oligopolies produce homogeneous products; others produce heterogeneous products. Examples: airlines, pharmaceuticals, soda, cars

Limited Liability Company (LLC)

a form of business ownership that offers both limited liability to its owners and flexible tax treatment

Sherman Antitrust Act

an 1890 law that banned the formation of trusts and monopolies in the United States

vertical merger

a combination of firms at different stages in the production of a good or service

horizontal merger

the joining of two firms in the same industry

conglomerate

business combination merging more than three businesses that make unrelated products

unlimited liability

the responsibility of business owners for all of the debts of the business (sole proprietorship & partnership)

limited liability (risk)

financial responsibility of business owners only for what they invested in a business (LLC and corporation)

limited life

the firm legally ceases to exist when the owner dies, quits, or sells the business

unlimited life

the corporation continues in existence and is not dependent on the lives of its owners

double taxation

taxation of dividends both as corporate profit and as personal income