Unit 3 Economics

demand

the desire to own something and the ability to pay for it

law of demand

states that when a good’s price is lower, the quantity demanded (the amount people are willing to buy) is greater

substitution effect

takes place when a consumer reacts to a rise in the price of one good by consuming less of that good and more of an alternative one

income effect

the change of consumption resulting from a change in income

demand schedule

a table that lists the quantity of a goof that a person will purchase at various prices in a market

market demand schedule

a demand schedule that shows the quantities demanded at various prices by all consumers in the market

demand curve

a graphic representation of a demand schedule

ceteris paribus

the Latin phrase for “all other things held constant”

normal good

a good that consumers demand more of when their incomes increase

inferior good

a good that you would buy in smaller quantities, or not at all, if your income were to rise and you could afford something better

demographics

the statistical characteristics of populations, such as age, race, gender, occupation, and income level

complements

two goods that are bought and used together

substitutes

goods that are used in place of one another

non-price determinant

several factors that can lead to the shifting of demand up and down

elasticity of demand

the way that consumers respond to price changes; measures how drastically buyers will cut back or increase their demand for a good when the price rises or falls

inelastic

a demand that is relatively unresponsive to price changes; is less than 1

elastic

a demand that is very responsive to price changes; is greater than 1

unitary elastic

when the elasticity of demand is exactly equal to 1

total revenue

the amount of money a company receives by selling its goods

supply

the amount of a good or service that is available

Law of Supply

states that producers offer more of a good or service as its price increases and less as its price falls

quantity supplied

a term that describes how much of a good or service a producer is willing and able to sell at a specific price

supply schedule

an economic tool that shows the relationship between price and quantity supplied for a specific good or service, or how much of a good or service a supplier will offer at various prices

variable

a factor that can change

market supply schedule

a supply schedule that shows the relationship between prices and the total quantity supplied by all firms in a particular market

supply curve

a graphic representation of a supply schedule

market supply curve

a visual representation of the total quantity of a good or service that all producers are willing and able to supply at different prices during a specific period

elasticity of supply

measures how firms will respond to changes in the price of a good or service