# Honors Economics Study Guide, Unit 2

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Demand

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80 Terms

Demand

The various amounts of a product that someone is willing and able to buy over a range of possible prices at one point in time.

Microeconomics

the branch of economics that studies the economy of consumers or households or individual firms

Demand schedule

Shows the various quantities demanded of a particular product at all prices at a given time.

incentive

a positive motivational influence

Demand Curve

Shows the quantity demanded at each price that might prevail in the market

Law of Demand

The quantity demanded varies inversely with its price

Market Demand Curve

Shows the quantities demanded by everyone who is interested in purchasing the product

marginal utility

the amount that utility increases with an increase of one unit of an economic good or service

Diminishing marginal utility

The extra satisfaction we get from using additional quantities of the product begins to decline

Change in quantity demanded

A change that is graphically represented as a movement along the demand curve

Income effect

The change in quantity demanded because of a change price that alters consumers' income

Substitution effect

the change in quantity demanded because of a shift in relative prices

Change in demand

People may decide to buy different amounts of a product at the same price.

substitute

Can be used in place of other products. Demand decreases if price of its substitute decreases (direct relationship)

Complements

Related goods, increases the use of the other. Decrease in price of one causes increase of demand in other (inverse relationship).

Elasticity

The measure of responsiveness that describes the wat a dependent variavle changes in response to a change in an independent variable

Demand elasticity

The extent to which a change in price causes a change in quantity demanded

elastic

Change in price>change in quantity demanded, change in price moves in opposite direction from change in revenue, available substitutes, more income=more elastic, curve is more horizontal and gradual

Inelastic

Change in price<change in quantity demanded, change in price moves in the same direction as change in revenue, no available substitues, less income=less elastic, curve is vertical, rigid and steep.

Unit elastic

When a given change in price causes a proportional change in quantity demanded. =1

Supply

The amount of a product that would be produced, grown, or acquired and offered for sale at all possible prices that could prevail in market.

Law of Supply

More will be offered for sale at higher prices than at lower prices

Supply Curve

Graph that shows the quantities supplied at each possible price in the market

Market supply curve

Shows the quantities offered at various prices by all firms that sell the same product in a given market

Quantity supplied

specific amount offered for sale at a given price; point on the supply curve

Short run

Production period so short that only variable inputs (usually labor) can be changed

Long run

production period long enough to change amount of variable and fixed inputs used in production

Total production

total output or production by a firm

Marginal product

Extra output due to the addition of one more unit of input

Stages of production

Phases of production that consist of increasing, decreasing, and negative returns

Average revenue

Average price that every unit of output sells for

Total revenue

Total amount earned by a firm from the sale of its products; averahe price of a good sold times the quantity sold

Marginal revenue

Extra revenue from the sale of one additional unit of output

Profit-maximizing quantity of output

Level of production where marginal cost is equal to marginal revenue

Break-even point

Production level where total cost=total revenue; production needed if the firm is to recover its costs

E-commerce

commerce conducted electronically

Diminishing returns

Stage of production where output increases at a decreasing rate as more units of variable input are added

Fixed costs

Costs of production that do not change when output changes

Broad category of fixed costs that includes interest, rent, taxes, and executive salaries.

Variable costs

Production cost that varies as output changes; labor, energy, raw materials

Total cost

Sum of variable cost plus fixed cost; all costs associated with production

marginal cost

the increase or decrease in costs as a result of one more or one less unit of output

Change in quantity supplied

Change in the amount offered for sale in response to a price change; movement along the supply curve

Change in supply

Different amounts offered for sale at each and every possible price in the market; shift of the supply curve

subsidy

a grant paid by a government to an enterprise that benefits the public

Supply elasticity

Responsiveness of quantity supplied to a change in price

Production function

Shows how a change in the amount of a single variable input affects total output

price

The monetary value of a product

Rationing

System of allocating goods and services without prices