Unit 2 Econ Key Terms

market

buyers and sellers coming together to exchange goods, services, and/or resources

demand curve

the graphic representation of the quantity of a good or service that buyers are willing and able to buy at all possible prices during a certain time period

supply curve

the graphic representation of the quantity of a good or service that producers are willing and able to sell at all possible prices during a certain time period

equilibrium price

the price at which quantity supplied and quantity demanded are equal

equilibrium quantity

the quantity of a good or service supplied and demanded at the equilibrium price

law of demand

as price decreases, the quantity demanded increases; as price increases, the quantity demanded decreases

revenue

money received; income

profit

the amount of revenue that remains after a business pays the costs of producing a good or service

costs of production

costs a firm incurs from manufacturing a product or providing a service (includes the factors of production; e.g. capital and labor)

law of supply

as price decreases, the quantity supplied decreases; as price increases, the quantity supplied increases

demand shifts

indicates a change in quantity demanded at every price

normal goods

a product for which ↑income → ↑D (rightward shift), and vice versa

inferior goods

a product for which ↑income → ↓D (leftward shift), and vice versa

substitute goods

two products for which ↑P for one → ↑D (rightward shift) for the other, and vice versa

complementary goods

two products for which ↑P for one → ↓D (leftward shift) for the other, and vice versa

shortage

excess demand; QD > QS puts upward pressure on the price of a product

surplus

excess supply; QS > QD; puts downward pressure on the price of a product

supply shifts

indicates a change in quantity supplied at every price

subsidy

a payment made by the government to support a business or industry; no good or service is provided in return for the payment

market failure

occurs when people acting in their self-interest produce socially inefficient outcomes

tragedy of commons

the tendency to overuse a common resource (for the tragedy of the commons to occur, a product or resource must be nonexcludable & rivalrous.)

nonexcludable

the property of a product whereby the seller cannot keep nonpayers (free riders) from consuming the product

excludable

the property of a product whereby the seller can keep nonpayers (free riders) from consuming the product

nonrivalrous

the property of a product whereby one party’s consumption of the product does not prevent another party’s consumption of the product

rivalrous

the property of a product whereby consumption by one party prevents another party’s consumption of the product

public good

a product that is nonexcludable and nonrival

free-rider

a person who receives benefits from something for which they didn’t pay

externality

a cost or benefit to a third party arising from a transaction between two parties unrelated to the third party

positive externality

a benefit to a third party arising from a transaction between two parties unrelated to the third party

negative externality

a cost to a third party arising from a transaction between two parties unrelated to the third party

market power

the ability of a single firm (or small group of firms) to have a substantial influence on market prices

perfect competition

a product market structure where there are many buyers and many sellers of an identical product (extremely rare)

monopolistic competition

a product market structure where many firms produce similar, but not identical, products

oligopoly

a product market where there are very few firms, or where a few firms dominate

collusion

an agreement among firms to limit competition

monopoly

a product market where there is only one firm, or where one firm dominates

government failure

occurs when government action causes inefficient outcomes and a decline in economic well-being

income

the payment people receive for providing resources in the marketplace during a specific period in the form of wages, salary, rent, profit, and interest

social safety net

cash assistance, goods, and services provided by government to better the lives of those at the bottom of the income distribution

means-tested

eligibility depends on the level of one’s current income or assets

progressive tax

a tax in which high-income earners pay a larger fraction of their income in taxes than low-income earners do