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flash cards for the test :)
demand
the desire to own something and the ability to pay for it
law of demand
consumers will buy more of a good when its price is lowered and less when its price is higher
substitution effect
when consumers react to an increase in a good’s price by consuming less of that good and more of a substitute good
income effect
the charge in consumption that results when a price increases causes real income to decline
elasticity of demand
a measure of how consumers respond to price changes
if prices rise and income stays the same, what is the effect on demand?
demand goes down
how does the substitution effect work when the price of an item drops?
people will buy less of the substitution and more of the original good
what does it mean when you have demand for a good or service?
have the desire and ability to buy something
how might advertising lead to a shift in the demand curve?
more demand in the product being advertised/helps to create fads and trends
what does elasticity of demand measure?
measures how consumers respond to a change in price
quantity supplied
the amount that a supplier is willing and able to supply at a specific price
supply
the amount of goods available
law of supply
producers offer more of a good as its price increases and less as its price falls
when the price of a product goes down, what happens?
the suppliers will produce less and when the price goes up, they will produce more
a graph of the information in a supply schedule creates which of the following?
supply curve
how is the total cost of a factory or other production site determined?
fixed cost + variable cost
how is profit determined?
total revenue - total cost = profit/loss
how does specialization affect production?
makes production more efficient
in general, what happens to the price of a good or service when a shortage of that good or service occurs?
prices go up
if a baker’s supply of bread exceeds the demand for bread, he should…
lower the price of bread
in what ways does the government control markets?
price ceilings and price floors
what is the government’s goal in buying excess crops of other agricultural products?
trying to keep prices from falling
what happens to the price of a good or service when there is excess demand?
prices go up
what is a main principle of Adam Smith’s The Wealth of Nations?
when is a market at equilibrium?
quality demand = quality supplied
barrier to entry
any factor that makes it difficult for a new firm to enter the market
merger
when two or more companies join to form a single firm
monopolistic competition
a market structure in which many companies sell products that are similar but not identical
natural monopoly
a market that runs most efficiently when one range firm supplies all of the outputs
oligopoly
a market structure in which a few large firms dominate a market
monopoly
a market in which a single seller dominates
why does a perfectly competitive market require many participants as both buyers and sellers?
no individual can control prices
what is the relationship between start-up costs and a competitive market?
the higher the costs = less competitive/lower costs = more competitive
patents are a form of monopoly that society allows because they…
encourage innovation
why does the government give copyrights to artists?
gives the artists control of their work
which of these businesses have the advantage of economies of scale?
large corporations
a major characteristic of monopolistic competition is that price will be…
higher in a competitive market but lower in monopolistic market
what can the government do to keep monopolies from being formed?
block mergers
what is the intent of both deregulation and antitrust laws?
to increase competition
Note 
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