Economics and Personal Finance Unit 2

law of demand

how much of a product people want as prices inc and dec

market demand

how many goods all people are willing to buy of a specific product

utility

pleasure, usefulness, or enjoyment we get from using a product

principle of diminishing marginal utility

each additional unit of a product is less valuable than the one that came before it

Demand Factors

1) consumer income

2) population

3) consumer attitudes and tastes

4) consumer expectations

5) prices and availability of substitutes 

6) prices and availability of complementaries

shift up and down the curve

only price changes

elasticity of demand

how demand changes depending on price changes and substitute goods

supply

amount suppliers are willing to produce at various prices

Supply Factors

1) cost of resources

2) productivity

3) new tech

4) change in gov policy

5) taxes (inc cost) and subsidies (dec cost)

surplus

quantity supplied is higher than quantity demanded (above equilibrium)

shortage

quantity demanded is higher than quantity supplied (below equilibrium)

price ceiling

max price that can be charged by sellers

price floor

min price paid by consumers

sole proprietorship

owned and operated by one person with all responsibility and liability 

partnership

share control and liability; based on articles of partnership

general partner

majority of control

limited partner

owns small part of the business

joint ventures

temporary partnership to do a job while increasing profits for both

LLCs

members are not personally responsible for company’s debts, protecting assets of owners

corporations

owned by many people (stockholders), treated as one person

franchises

franchiser sells the name, help train employees, and set up business that the franchisee owns

perfect competition

many buyers and many sellers of an IDENTICAL product, extremely rare, no market power

monopolistic competition

many sellers produce similar but not identical products, some market power, most common

oligopoly

very few sellers or dominated by few businesses, some market power (shoes, cereal, etc)

monopoly

only one firm or one firm dominates, no real substitutes, dominates market power

natural monopolies

local utilities like water, power, gas, etc

Sherman Anti-Trust Act

US law that prohibits unfair monopolies and promotes competition

mergers

combination of businesses, legal as long as doesn’t create monopoly

vertical mergers

different levels/stages of production

horizontal mergers

Mergers of “like” companies for efficiencies, eliminates some competition

conglomerates

mergers of various businesses for profits (no real connection or theme)