Unit 2 - Supply, demand, and market equilibrium - Khan Academy

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77 Terms

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PES

measures how sensitive are sellers to price changes on goods.

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Substitution effect

as the price of a good increases, consumers substitute the good with another that is cheaper.

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License

gives an owner the right to supply a good /service.

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Deadweight loss

transactions that should occur, but dont because of government intervention (calculate the area= triangle formula, ½ (base x height)

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Quota

upper limit of a quantity that can be bought or sold (known as quantity control)

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Subsidies

are the opposite of taxes and help reduce price per unit.

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Inferior good

increase in demand when consumers income decreases

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Equilibrium

QS=QD in a market setting, an equilibrium occurs when price has adjusted until quantity supplied is equal to quantity demanded

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Substitutes

good /service that can be used in place of another, when price of one increases, consumers will buy more of the other (ex.

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Complements

goods /services that are consumed together (ex.

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inverse impact

The cost of production (land, labor, capital) has a(n) on the supply.

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large portion

Flat, quantity is sensitive to price change, substitutes, luxury items, of income, not needed immediately.

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Elasticity

how much the Q is affected by P.

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Tariffs

tax placed on a good that is imported or exported.

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Quota rent

difference between demand price and supply price.

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Negative

= compliments (inferior good)

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positive

= substitutes (normal good)

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Shortage

Qs <Qd, price is lower than equilibrium.

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Double shift

either price or quantity will be unknown.

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Taxes

are added up to the unit cost of production, thus making it more expensive.

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Elastic demand

means that the goods are subject to be affected by a change in price.

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Inelastic demand

TR correlates direct with price.

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Normal good

a good for which demand will increase when buyers’ incomes increase.

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market supply

The shows the quantity a supplier is willing and able to offer at various prices at a given time.

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Elastic demand

TR correlates inversely with price.

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Inelastic demand

means that goods are not subject to be affected by a change in price.

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Demand

all of the quantities of a good or service that buyers would be willing and able to buy at all possible prices; demand is represented graphically as the entire demand curve.

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Law of Demand

As price increases, QT demand decreases, and as price decreases, QT demand increases

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Substitutes

good/service that can be used in place of another, when price of one increases, consumers will buy more of the other (ex

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Substitution effect

as the price of a good increases, consumers substitute the good with another that is cheaper

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Complements

goods/services that are consumed together (ex

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Income effect

as income increases, people will buy more of normal goods, and less of inferior goods

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Normal good

increase in demand when consumers income increases (ex

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Inferior good

a good for which demand will decrease when buyers’ incomes increase.

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Diminishing marginal utility

As more units of a product are consumed, the satisfaction/utility it provides tends to decline

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Supply

different quantities of goods/services which sellers are willing and able to produce at a given price

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Law of supply

as price increases, quantity supplied also increases, this is a direct relation

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Inelastic demand

TR correlates direct with price

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Elasticity

how much the Q is affected by P

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PES

measures how sensitive are sellers to price changes on goods

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Inelastic

 unable to respond to price change

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Equilibrium

occurs when no one is better off doing something else

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Producer surplus

actual price -price the producer is willing to sell for

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Demand increase

price and quantity increase

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Demand decrease

price and quantity decrease

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Supply increase

price decreases, quantity increases

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Supply decrease

 price increases, quantity decreases

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Double shift

either price or quantity will be unknown

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Deadweight loss (DWL)

transactions that should occur, but dont because of government intervention (calculate the area = triangle formula, ½(base x height)

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Price floor

minimum price a supplier can charge, price is set above equilibrium (causes shortage)

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Price ceiling

maximum price a supplier can charge, price is set below equilibrium (causes surplus)

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Quota

upper limit of a quantity that can be bought or sold (known as quantity control)

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License

gives an owner the right to supply a good/service

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Demand price

the price at which consumers will demand that quantity

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Supply price

the price at which producers will supply that quantity

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Quota rent

difference between demand price and supply price

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Tariffs

tax placed on a good that is imported or exported

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Import quota

restriction on the quantity of a good that can be imported

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TONIE 

(T-tastes, O-other goods, N-number of buyers, I-income, E-expectations)

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quantity demanded

the specific amount that buyers are willing to purchase at a given price; each point on a demand curve is associated with a specific quantity demanded.

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change in quantity demanded

a movement along a demand curve caused by a change in price; a change in quantity demanded is a movement along the same curve

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change in demand

when buyers are willing to buy a different quantity at all possible prices, which is represented graphically by a shift of the entire demand curve; this occurs due to a change in one of the determinants of demand.

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determinants of demand

changes in conditions that cause the demand curve to shift; the mnemonic TONIE can help you remember the changes that can shift demand (T-tastes, O-other goods, N-number of buyers, I-income, E-expectations)

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substitute goods

goods that can replace each other; when the price of a good increases, the demand for its substitute will increase.

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complement goods

goods that tend to be consumed together; when the price of a good increases the demand for its complement will decrease.

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demand schedule

a table describing all of the quantities of a good or service; the demand schedule is the data on price and quantities demanded that can be used to create a demand curve.

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demand curve

a graph that plots out the demand schedule, which shows the relationship between price and quantity demanded

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quantity supplied

the amount of a good or service that sellers are willing to sell at a specific price; quantity supplied is represented in a graphical model as a single point on a supply curve.

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change in quantity supplied

a movement along a supply curve resulting from a change in a good’s price

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change in supply

a movement or shift in an entire supply curve resulting from a change in one of the non-price determinants of supply

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determinants of supply

changes in non-price factors that will cause an entire supply curve to shift (increasing or decreasing market supply); these include 1) the number of sellers in a market, 2) the level of technology used in a good’s production, 3) the prices of inputs used to produce a good, 4) the amount of government regulation, subsidies or taxes in a market, 5) the price of other goods sellers could produce, and 6) the expectations among producers of future prices. CTIGOE

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CTIGOE

Competition, Technology, Input price (Cost), Government, Opportunity Cost, Expectations

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market

an interaction of buyers and sellers where goods, services, or resources are exchanged

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surplus

QS>QD

when the quantity supplied of a good, service, or resource is greater than the quantity demanded

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disequilibrium

QS<>QD in a market setting, disequilibrium occurs when quantity supplied is not equal to the quantity demanded; when a market is experiencing a disequilibrium, there will be either a shortage or a surplus.

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equilibrium price

the price in a market at which the quantity demanded and the quantity supplied of a good are equal to one another; this is also called the “market clearing price.”

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equilibrium quantity

the quantity that will be sold and purchased at the equilibrium price