Topic 3: Demand, Supply & Price Determination

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Last updated 5:06 AM on 10/9/26
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56 Terms

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Demand

Desire to own something and ability to pay for it

<p>Desire to own something and ability to pay for it</p>
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Law of Demand

The law of demand states that as the price of a good increases, the quantity demanded decreases, and vice versa.

<p>The law of demand states that as the price of a good increases, the quantity demanded decreases, and vice versa.</p>
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Substitution Effect

Consumers react to price increase by consuming more of other goods

<p>Consumers react to price increase by consuming more of other goods</p>
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Income Effect

Consumers change consumption due to change in real income

<p>Consumers change consumption due to change in real income</p>
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Demand Schedule

Shows relationship between price and quantity demanded

<p>Shows relationship between price and quantity demanded</p>
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Market Demand Schedule

Chart listing quantity demanded at different prices

<p>Chart listing quantity demanded at different prices</p>
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Demand Curve

Graphic representation of demand schedule

<p>Graphic representation of demand schedule</p>
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Individual Demand Schedule

Shows relationship between price and quantity demanded by an individual

<p>Shows relationship between price and quantity demanded by an individual</p>
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Market Demand Curve

Graphic representation of market demand schedule

<p>Graphic representation of market demand schedule</p>
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Normal Goods

Demand increases with income increase

<p>Demand increases with income increase</p>
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Inferior Goods

Demand decreases with income increase

<p>Demand decreases with income increase</p>
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Demographics

Age, race, gender, occupation, and income impact production

<p>Age, race, gender, occupation, and income impact production</p>
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Complements

Goods bought and used together

<p>Goods bought and used together</p>
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Substitutes

Goods used in place of one another

<p>Goods used in place of one another</p>
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Elasticity of Demand

Measure of consumer response to price change

<p>Measure of consumer response to price change</p>
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Inelastic Demand

Demand doesn't change much with price change

<p>Demand doesn't change much with price change</p>
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Elastic Demand

Demand changes significantly with price change

<p>Demand changes significantly with price change</p>
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Unitary Elastic Demand

Demand changes proportionally with price change

<p>Demand changes proportionally with price change</p>
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Total Revenue

Price multiplied by quantity sold

<p>Price multiplied by quantity sold</p>
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Expenses

Costs subtracted from revenue to calculate net income

<p>Costs subtracted from revenue to calculate net income</p>
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Production Costs

Costs associated with producing a good

<p>Costs associated with producing a good</p>
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Marginal Product of Labor

Change in output from hiring one additional worker

<p>Change in output from hiring one additional worker</p>
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Increasing Marginal Returns

Marginal production levels increase with new investment

<p>Marginal production levels increase with new investment</p>
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Diminishing Marginal Returns

Marginal production levels decrease with new investment

<p>Marginal production levels decrease with new investment</p>
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Negative Marginal Returns

Marginal product of labor becomes negative

<p>Marginal product of labor becomes negative</p>
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Fixed Cost

any cost that does not change when the firm changes its output.

<p>any cost that does not change when the firm changes its output.</p>
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Variable Costs

Costs that rise or fall depending on production

<p>Costs that rise or fall depending on production</p>
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Total Cost

the sum of the fixed and variable costs for any given level of production

<p>the sum of the fixed and variable costs for any given level of production</p>
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Marginal Cost

the cost of producing one more unit of a good or service

<p>the cost of producing one more unit of a good or service</p>
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Marginal Revenue

Additional income from selling one more unit of a good, aka the price

<p>Additional income from selling one more unit of a good, aka the price</p>
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Average Cost

total cost divided by the quantity produced; sometimes known as unit cost

<p>total cost divided by the quantity produced; sometimes known as unit cost</p>
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Operating Cost

Costs incurred in day-to-day business operations

<p>Costs incurred in day-to-day business operations</p>
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Supply

Amount of a good offered for sale at a specific price

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Law of Supply

As the price goes up, producers want to supply more quantity

<p>As the price goes up, producers want to supply more quantity</p>
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Quantity Supplied

Amount of a good offered for sale at a specific price

<p>Amount of a good offered for sale at a specific price</p>
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Supply Schedule

Shows relationship between price and quantity supplied

<p>Shows relationship between price and quantity supplied</p>
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Market Supply Schedule

Chart listing quantity supplied at different prices

<p>Chart listing quantity supplied at different prices</p>
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Supply Curve

a graphic representation of a supply schedule, showing the relationship between the price of an item and the quantity supplied during a given time period, with all other things being equal.

<p>a graphic representation of a supply schedule, showing the relationship between the price of an item and the quantity supplied during a given time period, with all other things being equal.</p>
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Market Supply Curve

Graphic representation of market supply schedule

<p>Graphic representation of market supply schedule</p>
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Elasticity of Supply

Measure of supplier response to price change

<p>Measure of supplier response to price change</p>
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Subsidy

Money granted by government to assist industry or business

<p>Money granted by government to assist industry or business</p>
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Excise Tax

Tax required on specific goods or services

<p>Tax required on specific goods or services</p>
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Regulation

Imposition of rules by government to modify economic behavior

<p>Imposition of rules by government to modify economic behavior</p>
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Inventory

Stock of goods held by a business

<p>Stock of goods held by a business</p>
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Search Costs

Financial and opportunity costs in searching for a product

<p>Financial and opportunity costs in searching for a product</p>
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Equilibrium

Price and quantity where demand equals supply

<p>Price and quantity where demand equals supply</p>
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Shortage

Quantity demanded exceeds quantity supplied

<p>Quantity demanded exceeds quantity supplied</p>
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Price Ceiling

Maximum price that can be legally charged

<p>Maximum price that can be legally charged</p>
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Price Floor

Minimum price that must be paid

<p>Minimum price that must be paid</p>
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Barter

Exchange of goods without using money

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Supply Shock

Sudden shortage of a good

<p>Sudden shortage of a good</p>
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Rationing

Allocating goods and services using non-price basis

<p>Allocating goods and services using non-price basis</p>
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negative externality

a cost that is suffered by a third party as a result of an economic transaction

<p>a cost that is suffered by a third party as a result of an economic transaction</p>
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Income Elasticity of Demand

the change in quantity demanded that results from a change in income:

<p>the change in quantity demanded that results from a change in income:</p>
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Cross-Elasticity of Demand

Exy = [% change in quantity demanded of product Y] / [% change in price of product X]

<p>Exy = [% change in quantity demanded of product Y] / [% change in price of product X]</p>
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short run adjustment (to changes in demand)

would be to hire more workers or expand hours of operation

<p>would be to hire more workers or expand hours of operation</p>