Chapter 6: Supply and Demand

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20 Terms

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Demand curve

shows relationship between price and quantity demanded of a good during a certain period of time

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Law of diminishing marginal utility

satisfaction decreases as additional units of a good is consumed within a given period

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Law of demand

as the price of a good increases, the demand decreases

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Supply curve

shows relationship between price and quantity supplied by a perfectly competitive firm during a certain period of time

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Law of supply

as the price increases, the quantity of a good also increases

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Marginal cost

additional cost of producing another unit

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Market supply curve

shows total quantities of a good that suppliers are willing able able to provide at various prices during a period of time

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Change in quantity supplied

change in price → sellers adjust quantity

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Change in supply

change in overall supply

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Long-run average cost (LRAC)

cost function that represents the average cost per unit for producing a good

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Use of equipment

robots, assembly lines, etc

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Diseconomies of scale

exist over range of output when LRAC increases

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Increasing returns (to scale)

when output increases proportionately more than increases in all inputs

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Decreasing cost firm

firm facing increasing returns to scale

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Decreasing returns (to scale)

when output increases proportionately less than increases in all inputs

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Increasing cost firm

firm facing decreasing returns to scale

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Constant returns (to scale)

increase in output is equal to increase in input

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Diminishing (marginal) returns

additional unit of input increases total input less than the previous unit of input → holds all other inputs constant

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Increasing cost firm

faces decreasing returns to scale

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Decreasing cost firm

faces increasing returns to scale