Law of Supply producers offer more of a good as its price increases and less as its price falls Law of Demand consumers buy more of a good when its price decreases and less when its price increases Supply The amount of goods available at various prices over a specific period of time Demand the quantity of a good or service that consumers are willing and able to buy at various prices over s specific period of time elasticity of demand a measure of how consumers respond to price changes elastic demand curve Elasticity is greater than 1, quantity moves proportionately more than the price, "flat" inelastic demand A situation in which an increase or a decrease in price will not significantly affect demand for the product; perceived necessity with few substitutes elasticity formula % change in quantity / % change in price total revenue Price x Quantity profit total revenue minus total cost total cost fixed costs plus variable costs fixed costs Costs that do not vary with the quantity of output produced variable costs costs that change as output changes marginal cost the cost of producing one more unit of a good marginal revenue the additional income from selling one more unit of a good; sometimes equal to price Factors or production land, labor, capital, entrepreneurship; shift the demand curve Determinants of Demand the external factors that shift demand to the left or right; income, attitude, substitute, complement substitute a good that can be used in place of another good complement goods that consumers purchase together with another good increase in demand a rightward shift of the demand curve; causes price to increase and quantity to increase decrease in demand a leftward shift of the demand curve; causes price to decrease and quantity to decrease increase in supply a rightward shift of the supply curve; causes price to decrease and quantity to increase decrease in supply a leftward shift of the supply curve; causes price to increase and quantity to decrease Equilibrium the price at which quantity demanded meets quantity supplied Disequilibrium any price or quantity not at equilibrium; when quantity supplied is not equal to quantity demanded in a market shortage A situation in which quantity demanded is greater than quantity supplied surplus A situation in which quantity supplied is greater than quantity demanded tax line extra charge on a good or service; placed to the left of equilibrium quantity subsidy line help to pay the costs of production; placed right of the equilibrium quantity price ceiling a maximum price that can be legally charged for a good or service; placed below the equilibrium price price floor A legal minimum on the price at which a good can be sold; placed above the equilibrium price perfect competition unlimited buyers and sellers of a commodity; no control over the price so costs per unit must be reduced Monopoly one seller with complete control over the market; regulated in US if there is an economy of scale monopolistic competition a market structure in which many companies sell products that are similar but not identical; elastic demand where quality of good is up and prices are down Oligolopy A market structure in which a few large firms dominate a market; can work together to manipulate production and pricing economy of scale as output increases, long-run average cost falls commodity a product that is the same no matter who produces it Differentiation making a product different from other similar products graph with the "bent" demand curve oligopoly "mover" of Qs or Qd IMAGE Price

Law of Supply

producers offer more of a good as its price increases and less as its price falls

Law of Demand

consumers buy more of a good when its price decreases and less when its price increases

Supply

The amount of goods available at various prices over a specific period of time

Demand

the quantity of a good or service that consumers are willing and able to buy at various prices over s specific period of time

elasticity of demand

a measure of how consumers respond to price changes

elastic demand curve

Elasticity is greater than 1, quantity moves proportionately more than the price, "flat"

inelastic demand

A situation in which an increase or a decrease in price will not significantly affect demand for the product; perceived necessity with few substitutes

elasticity formula

% change in quantity / % change in price

total revenue

Price x Quantity

profit

total revenue minus total cost

total cost

fixed costs plus variable costs

fixed costs

Costs that do not vary with the quantity of output produced

variable costs

costs that change as output changes

marginal cost

the cost of producing one more unit of a good

marginal revenue

the additional income from selling one more unit of a good; sometimes equal to price

Factors or production

land, labor, capital, entrepreneurship; shift the demand curve

Determinants of Demand

the external factors that shift demand to the left or right; income, attitude, substitute, complement

substitute

a good that can be used in place of another good

complement

goods that consumers purchase together with another good

increase in demand

a rightward shift of the demand curve; causes price to increase and quantity to increase

decrease in demand

a leftward shift of the demand curve; causes price to decrease and quantity to decrease

increase in supply

a rightward shift of the supply curve; causes price to decrease and quantity to increase

decrease in supply

a leftward shift of the supply curve; causes price to increase and quantity to decrease

Equilibrium

the price at which quantity demanded meets quantity supplied

Disequilibrium

any price or quantity not at equilibrium; when quantity supplied is not equal to quantity demanded in a market

shortage

A situation in which quantity demanded is greater than quantity supplied

surplus

A situation in which quantity supplied is greater than quantity demanded

tax line

extra charge on a good or service; placed to the left of equilibrium quantity

subsidy line

help to pay the costs of production; placed right of the equilibrium quantity

price ceiling

a maximum price that can be legally charged for a good or service; placed below the equilibrium price

price floor

A legal minimum on the price at which a good can be sold; placed above the equilibrium price

perfect competition

unlimited buyers and sellers of a commodity; no control over the price so costs per unit must be reduced

Monopoly

one seller with complete control over the market; regulated in US if there is an economy of scale

monopolistic competition

a market structure in which many companies sell products that are similar but not identical; elastic demand where quality of good is up and prices are down

Oligolopy

A market structure in which a few large firms dominate a market; can work together to manipulate production and pricing

economy of scale

as output increases, long-run average cost falls

commodity

a product that is the same no matter who produces it

Differentiation

making a product different from other similar products

graph with the "bent" demand curve

oligopoly

"mover" of Qs or Qd

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