Chapter 4 Flashcards: The Price System, Demand and Supply, and Elasticity

Vocabulary flashcards for reviewing key economic concepts related to price systems, supply and demand, and elasticity.

Resource Allocation

The market system determines the allocation of resources among producers and the final mix of outputs.

Price rationing

The market system distributes goods and services on the basis of willingness and ability to pay.

Price Ceiling

A maximum price that sellers may charge for a good, usually set by government.

Queuing

A nonprice rationing system that uses waiting in line as a means of distributing goods and services.

Favored Customers

Those who receive special treatment from dealers during situations when there is excess demand.

Ration Coupons

Tickets or coupons that entitle individuals to purchase a certain amount of a given product per month.

Black Market

A market in which illegal trading takes place at market-determined prices.

Price Floor

A minimum price below which exchange is not permitted.

Consumer Surplus

The difference between the maximum amount a person is willing to pay for a good and its current market price.

Producer Surplus

The difference between the maximum amount a producer is willing to accept to supply a good and its current market price.

Deadweight Loss

A reduction in total surplus (producer and consumer) due to under- or overproduction in a market.

Elasticity

A general concept that can be used to quantify the response in one variable when another variable changes.

Price Elasticity of Demand

Measures how responsive consumers are to changes in the price of a product.

Perfectly Inelastic Demand

Demand does not respond at all to a change in price.

Perfectly Elastic Demand

Quantity demanded drops to zero at the slightest increase in price.

Income Elasticity of Demand

Measures the responsiveness of demand to changes in income.

Cross-Price Elasticity of Demand

A measure of the response of the quantity of one good demanded to a change in the price of another good.

Elasticity of Supply

A measure of the response of quantity of a good supplied to a change in the price of that good.

Elasticity of labor supply

A measure of the response of labor supplied to a change in the price of labor.