Unit 2 (Microeconomics)

gov. means government

Demand

the desire, willingness, and ability to buy a good/service

Willingness

how willing am I to buy a good? consider the opportunity cost of my choice

Demand Schedule

a table that list the various quantities of a good/service that someone is willing to buy over a range of possible prices

Law of demand

normally, people are willing to buy less when price is high ad are wiling to buy more when price is low

Utility

the pleasure, usefulness, or satisfaction a product gives

Principle of diminishing returns

the additional satisfaction gained from a purchase goes down as we buy more and more

Factors that shift the demand curve

1) Buyers (the number of)

2) Income changes

3) Taste (change in preference or popularity)

4) Expectations (or predictions)

5) Related Goods (Compliments and Substitutes)

(remember BITER)

Substitute good

a product used/bought in place of another (ex: off brand items are subs for the name brand item)

Complementary good

a product that goes with another product (ex: cars and gas are compliments)

Profit

money a business has left over after it covers its cost

Law of supply

producers like to sell more at higher prices and sell less at lower prices (goal is to maximize profit)

Supply

various quantities of a good/service that producers are willing to sell at all possible market prices

What is the difference between supply and quantity supplied

supply is the entire relationship between prices and the amounts producers wish to sell, while quantity supplied is the exact amount offered at one specific price

Supply schedule

a table that shows how many units of a good/service a producer is willing to sell at a specific price

Factors that shift the supply curve

1) Subsidies and taxes

2) Technology

3) Other goods (the price of good they could produce)

4) Number of sellers

5) Expectations (or predictions)

6) Resources (factors of production: land, labor, and capital)

Subsidies

money given by the gov. to encourage a business to make a certain product

circular flow

a visual model that shows how money, goods, and services move through an economy between households and firms

Product Market

A

Government

E

Households

B

Factors of production market

C

Buisnesses/firms

D

Taxes

N and O

Buy goods

J

Buys product to restock

K

Buys factors of production to make goods

L

“Buys” labor (or give paychecks)

M

Sold to us for us to own

G

we go to work (provide labor)

I

Provide resources

H

Ship/provide products

F

Equilibrium

interaction of supply and demand that drives prices to a set point; quantity consumers are willing to buy equals the quantity producers are willing/able to supply

Surplus

amount supplied is higher than amount demanded; shows prices are too high

Shortage

amount supplied is lower than amount demanded; shows prices are too low