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PES
measures how sensitive are sellers to price changes on goods.
Substitution effect
as the price of a good increases, consumers substitute the good with another that is cheaper.
License
gives an owner the right to supply a good /service.
Deadweight loss
transactions that should occur, but dont because of government intervention (calculate the area= triangle formula, ½ (base x height)
Quota
upper limit of a quantity that can be bought or sold (known as quantity control)
Subsidies
are the opposite of taxes and help reduce price per unit.
Inferior good
increase in demand when consumers income decreases
Equilibrium
QS=QD in a market setting, an equilibrium occurs when price has adjusted until quantity supplied is equal to quantity demanded
Substitutes
good /service that can be used in place of another, when price of one increases, consumers will buy more of the other (ex.
Complements
goods /services that are consumed together (ex.
inverse impact
The cost of production (land, labor, capital) has a(n) on the supply.
large portion
Flat, quantity is sensitive to price change, substitutes, luxury items, of income, not needed immediately.
Elasticity
how much the Q is affected by P.
Tariffs
tax placed on a good that is imported or exported.
Quota rent
difference between demand price and supply price.
Negative
= compliments (inferior good)
positive
= substitutes (normal good)
Shortage
Qs <Qd, price is lower than equilibrium.
Double shift
either price or quantity will be unknown.
Taxes
are added up to the unit cost of production, thus making it more expensive.
Elastic demand
means that the goods are subject to be affected by a change in price.
Inelastic demand
TR correlates direct with price.
Normal good
a good for which demand will increase when buyers’ incomes increase.
market supply
The shows the quantity a supplier is willing and able to offer at various prices at a given time.
Elastic demand
TR correlates inversely with price.
Inelastic demand
means that goods are not subject to be affected by a change in price.
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.
Law of Demand
As price increases, QT demand decreases, and as price decreases, QT demand increases
Substitutes
good/service that can be used in place of another, when price of one increases, consumers will buy more of the other (ex
Substitution effect
as the price of a good increases, consumers substitute the good with another that is cheaper
Complements
goods/services that are consumed together (ex
Income effect
as income increases, people will buy more of normal goods, and less of inferior goods
Normal good
increase in demand when consumers income increases (ex
Inferior good
a good for which demand will decrease when buyers’ incomes increase.
Diminishing marginal utility
As more units of a product are consumed, the satisfaction/utility it provides tends to decline
Supply
different quantities of goods/services which sellers are willing and able to produce at a given price
Law of supply
as price increases, quantity supplied also increases, this is a direct relation
Inelastic demand
TR correlates direct with price
Elasticity
how much the Q is affected by P
PES
measures how sensitive are sellers to price changes on goods
Inelastic
unable to respond to price change
Equilibrium
occurs when no one is better off doing something else
Producer surplus
actual price -price the producer is willing to sell for
Demand increase
price and quantity increase
Demand decrease
price and quantity decrease
Supply increase
price decreases, quantity increases
Supply decrease
price increases, quantity decreases
Double shift
either price or quantity will be unknown
Deadweight loss (DWL)
transactions that should occur, but dont because of government intervention (calculate the area = triangle formula, ½(base x height)
Price floor
minimum price a supplier can charge, price is set above equilibrium (causes shortage)
Price ceiling
maximum price a supplier can charge, price is set below equilibrium (causes surplus)
Quota
upper limit of a quantity that can be bought or sold (known as quantity control)
License
gives an owner the right to supply a good/service
Demand price
the price at which consumers will demand that quantity
Supply price
the price at which producers will supply that quantity
Quota rent
difference between demand price and supply price
Tariffs
tax placed on a good that is imported or exported
Import quota
restriction on the quantity of a good that can be imported
TONIE
(T-tastes, O-other goods, N-number of buyers, I-income, E-expectations)
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.
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
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.
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)
substitute goods
goods that can replace each other; when the price of a good increases, the demand for its substitute will increase.
complement goods
goods that tend to be consumed together; when the price of a good increases the demand for its complement will decrease.
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.
demand curve
a graph that plots out the demand schedule, which shows the relationship between price and quantity demanded
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.
change in quantity supplied
a movement along a supply curve resulting from a change in a good’s price
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
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
CTIGOE
Competition, Technology, Input price (Cost), Government, Opportunity Cost, Expectations
market
an interaction of buyers and sellers where goods, services, or resources are exchanged
surplus
QS>QD
when the quantity supplied of a good, service, or resource is greater than the quantity demanded
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.
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.”
equilibrium quantity
the quantity that will be sold and purchased at the equilibrium price