Econ 50 Chapter 3

Utility Maximization

The goal pursued by consumers to get the most satisfaction from their available incomes.

Profit Maximization

The primary goal of businesses when they enter the marketplace.

General Welfare Maximization

The primary goal of governments within the marketplace.

Factor Market

Any place where factors of production are traded.

Product Market

Any place where finished goods and services (products) are traded.

Supply

The ability and willingness to sell (produce) specific quantities of a good at alternative prices in a given time period, ceteris paribus.

Demand

The willingness and ability to buy specific quantities of a good at alternative prices in a given time period, ceteris paribus.

Demand Schedule

A table showing the quantities of a good a consumer is willing and able to buy at alternative prices in a given time period, ceteris paribus.

Demand Curve

A curve describing the quantities of a good a consumer is willing and able to buy at alternative prices in a given time period, ceteris paribus.

Law of Demand

The principle that the quantity of a good demanded in a given time period increases as its price falls, ceteris paribus, resulting in a downward-sloping curve.

Determinants of Demand

Forces that influence willingness and ability to buy, including Tastes, Income, Other goods, Expectations, and the Number of buyers.

Substitute Goods

Goods that replace each other; when the price of good $x$ rises, the demand for good $y$ increases, ceteris paribus.

Complementary Goods

Goods frequently consumed in combination; when the price of good $x$ rises, the demand for good $y$ falls, ceteris paribus.

Ceteris Paribus

The assumption of nothing else changing, used by economists to focus on the independent influence of price.

Shift in Demand

A change in the quantity demanded at every price caused by changes in the underlying determinants of demand.

Movements along a Demand Curve

Labeled as "Changes in quantity demanded," these occur in response to price changes for that specific good.

Market Demand

The total quantities of a good or service all people are willing and able to buy at alternative prices in a given time period; the sum of individual demands.

Determinants of Supply

Factors including Technology, Factor costs, Other goods, Taxes and subsidies, Expectations, and the Number of sellers.

Law of Supply

The principle that the quantity of a good supplied in a given time period increases as its price increases, ceteris paribus.

Equilibrium Price

The price at which the quantity of a good demanded in a given time period equals the quantity supplied.

Market Surplus

Also known as excess supply, it is the amount by which quantity supplied exceeds the quantity demanded at a price greater than equilibrium.

Market Shortage

Also known as excess demand, it is the amount by which quantity demanded exceeds the quantity supplied at a price lower than equilibrium.

Price Floor

A lower limit imposed on the price of a good that increases quantity supplied, decreases quantity demanded, and creates a market surplus.

Price Ceiling

An upper limit imposed on the price of a good that increases quantity demanded, decreases quantity supplied, and creates a market shortage.

Market

Whenever or wherever an exchange takes place.

Consumer Goal

The goal in a market economy to use limited income to buy the set of goods and services that maximizes the consumer's total utility.

Determinants of Demand

Factors that influence the demand curve, including tastes and preferences, income, and complements and substitutes; notably, technology is not one of these determinants.

Determinants of Supply

Factors that influence the supply curve, including technology, cost of raw materials, taxes and subsidies, and other goods; notably, taste for the product is not one of these determinants.

Supply and Demand Variables

The two variables measured by supply and demand curves: price and quantity.

Supply Curve Slope

The direction of the supply curve, which is characterized as up sloping.

Rightward Shift in Market Supply

A movement in the supply curve caused by events such as a technological improvement that reduces the cost of production.

Market Mechanism

The use of market prices and sales to determine resource allocation.

Equilibrium Effect of Decreased Input Price

An occurrence where a decrease in the price of a raw material (e.g., milk for ice cream) causes the equilibrium price to decrease and the equilibrium quantity to increase.