Microeconomics Unit Two

Demand

The willingness and ability of sonsumers to buy a range of quanities at every possible price

The Law of Demand

The quantity demanded of a good or service is inversely related to its price, ceteris paribus

Income Effect

As price increases, people are willing to buy less because it takes a greater portion of their income

Purchasing Power

The quantity of goods and services that a consumer can buy with an amount of income

Determinants of Consumer Demand

Factors that move the entire demand curve for a good or service

Normal Goods

Goods that people will buy more of when their income increases

Inferior Goods

Good people will buy less of when their income increases

The Law of Supply

The quantity cupplied of a good or service is directly related to its price

Elasticity

How responsive supply or demand is to a change in price or income

Allocative Efficiency

When resources are used to maximize consumer satisfaction, to best meet consumer demand

Binding

With respect to price floors or ceilings, actually affecting the marker

Buyer’s Price

The amount of money consumers pay for a good

Consumer Surplus

Difference between what buyers would have been willing to pay and what they actually had to pay

Deadweight Loss

The losses of buyers and sellers from a marker intervention or market failure

Demand Schedule

The quantity of a good or service that an individual in a market will be willing and able to consume at every possible price

Determinants of Consumer Demand

The factors that move the entire demand curve for a good or service

Direct Relationship

A positive connection between two variables such that when one increases, the other increases as well, and when one decreases, the other decreases as well

Disequilibrium

A market situation in which quantity demanded and quantity supplied are not equal

Elasticity Coefficient

The relationship between the change in quantity and change in price, mathematically expressed as the percentage change in quantity over the percentage change in price

Elasticity of Supply

The percentage change in quantity supplied divided by the percentage change in price

Elasticity

How responsive supply or demand is to a change in a price in income

Excise Tax

A tax applied to the sale of a particular good

Income Effect

The principle that says as price increases, people are willing to buy less because higher prices means taking a greater portion of their income

Income Tax

A tax on individual consumers or households based on the amount of income they make

Law of Supply

The quantity supplied of a good or service is directly, or positively, related to its price, ceteris paribus

Market Equilibrium

The price and quantity level where supply and demand are in balance

Market Shortage

When quantity supplied is less than quantity demanded at the current price

Market Surplus

When quantity supplied is greater than quantity demanded at the current price

Minimum Wage

A pay level floor for labor that is set by policy; employers must pay worker at least this set level

Normal Goods

Something that people will buy more of when their income increases

Premiums

The monthly payment for insurance

Price Ceiling

A maximum price set by policy

Producer Surplus

The benefit or revenue gained from selling a product above the economic cost of production

Protectionism

The practice of a country taxing imported goods

Purchasing Power

The quantity of goods and services that a consumer can buy with an amount of income

Quantity Demanded

The number of units of a good or service that will be purchased at a particular price

Recession

Significant economic downturn, lowering average wages

Seller’s Price

The amount of money producers receive in the sale of a good

Subsidy

A government payment to an individual or business to encourage a certain activity

Substitution Effect

The change in the marginal utility per dollar of a good or service caused by a change in its price

Supply Schedule

The quantity that will be supplied of a good or service at every possible price

Total Revenue Test

Determining if demand is in the elastic, unit, or inelastic range by tracking total revenue