Microeconomics unit 2 A 1

Property rights

Legal rights to own, use, control, and sell property or resources.

Demand

The quantities of a good consumers are willing and able to purchase at different prices.

Law of demand

As price increases, quantity demanded decreases; as price decreases, quantity demanded increases, all else equal.

Own-price

The price of the good itself; changes cause movement along the demand curve rather than shifting it.

Market demand

The sum of all individual consumers' quantities demanded at each price.

Demand schedule

A table showing quantities demanded at different prices.

Change in quantity demanded

A movement along an existing demand curve caused only by a change in the good's own price.

Demand curve

A downward-sloping graph showing the relationship between price and quantity demanded.

Substitution effect

When a good becomes relatively more expensive, consumers switch toward cheaper alternatives.

Income effect

A price change alters purchasing power, affecting how much consumers can afford.

Change in demand

A shift of the entire demand curve caused by a factor other than the good's own price.

Determinants of demand

Prices of substitutes and complements, income, preferences, expectations, and number of buyers.

Normal vs. inferior goods

Demand for normal goods rises with income; demand for inferior goods falls as income rises.

Profit

Total revenue minus total cost.

Supply

The quantities producers are willing and able to sell at different prices.

Law of supply

As price increases, quantity supplied increases; as price decreases, quantity supplied decreases, all else equal.

Quantity supplied

The amount producers are willing and able to sell at one particular price.

Supply schedule

A table showing quantities producers will supply at different prices.

Supply curve

An upward-sloping graph showing the relationship between price and quantity supplied.

Change in supply

A shift of the entire supply curve caused by something other than the good's own price.

Determinants of supply

Input prices, technology, taxes, subsidies, expectations, number of sellers, related goods, and natural conditions.

Market supply curve

The sum of all producers' quantities supplied at each price.

Price elasticity of demand (PED)

How responsive quantity demanded is to a price change; PED = absolute value of % change in quantity demanded divided by % change in price.

Factors affecting demand elasticity

Availability of substitutes, necessity versus luxury, share of income, and time to adjust.

Five categories of demand elasticity

Elastic: PED > 1; inelastic: 0 < PED < 1; unit elastic: PED = 1; perfectly elastic: infinity; perfectly inelastic: 0.

Total revenue

The money earned from sales; TR = Price × Quantity sold.

Price effect vs. quantity effect

Price effect: revenue changes because of the price per unit; quantity effect: revenue changes because of the number of units sold.