ECON2105 Chap. 3

greatest benefits, lowest costs, right incentives

greatest benefits, lowest costs, right incentives

What are three ways to help someone acheive the best goal?

economic models

How can we test economic positive statements?

normative statement

statement which describes how the world should be-- usually an opinion.

production possibilities frontier (PPF)

the boundary between those combos of goods and services that can be produced and those that cannot

production efficiency

goods and services are being produced at the lowest possible cost

efficient

Points that lie on the PPF are considered (efficient/not efficient).

Market

A group of buyers and sellers of a particular good or service

Competitive Market

A Market in which there are many buyers and many sellers so that each has a small impact on the market price (no market power). Many economic models assume this.

Perfectly Competitive

A competitive situation in which : Goods are (almost) exactly the same, Buyers and sellers are so numerous that no one can affect the market price, which results in all individuals being price takers. Example could be the Wheat market, and a lot of agricultural markets.

Price takers

Buyers and sellers in a PERFECTLY competitive market(and sometimes competitive market) that must accept the price that the market determines

Monopoly

Domination of an industry by a single company that fixes prices and discourages competition; also, the company that dominates the industry by these means.

Quantity Demanded

The amount of a good or service that a consumer is willing and able to purchase at a given price.

Law of Demand

The economic law that states, all other things being equal(ceteris paribus), the quantity demanded of a good falls when the price of the good rises and the quantity demanded increases when the price of a good goes down.

Ceteris paribus

The Latin expression meaning that other variables are held fixed

Demand Schedule

A table that shows the relationship between the price of a good and the quantity demanded, holding constant everything else(ceteris paribus)

Demand Curve

A graph of the relationship between the price of a good and the quantity demanded, is a downward sloping line(indicating an inverse relationship between price and quantity demanded).

Market Demand

The sum of all the quantities of a good or service demanded per period by all the households buying in the market for that good or service.

Shift in Demand

The effect of a change in a nonprice factor on the demand curve, usually these factors include consumer expectations, income, and prices of related goods.

Normal Good

a good for which, other things equal, an increase in income leads to an increase in demand. (Ice Cream, etc)

Inferior Goods

a good or service whose consumption declines as income rises (and conversely), price remaining constant. Like Bus Rides

Substitutes

Two goods for which an increase in the price of one leads to an increase in the demand for the other or vice versa. Hot dogs+ hamburgers, sweaters and sweatshirts, etc etc

Complements

Two goods for which an increase in the price of one leads to a decrease in the demand for the other, gas and cars, computer and software.

Expectations

the anticipations of consumers, firms and others about future economic conditions, effects your demand of goods or services at every price(Demand Shift). If you expect an increase in income you will be more willing to spend than save, or vice versa. Also effects Supply of firms.

Number of Buyers

Demand for a good in a market is related to the amount of these in an area. A higher amount will lead to more demand at every price.

Quantity Supplied

the amount of a good or service that a firm is willing and able to supply at a given price

Law of Supply

The claim that, other things equal, the quantity supplied of a good rises when the price of the good rises.

Supply Schedule

A table showing quantities supplied at different possible prices.

Supply Curve

A curve that shows the relationship between the price of a product and the quantity of the product supplied.

Number of sellers

What shift in supply curve is this?number of people selling the object( more sellers shifts right, less shifts left)

Equilibrium quantity

The quantity demanded and supplied at the equilibrium price in a competitive market; or the profit-maximizing output of a firm.

Surplus

Situation in which quantity supplied is greater than quantity demanded, Happens if the market price is above the equilibrium price. Will result in firms cutting prices to try and achieve equilibrium.

Equilibrium price

The price in a competitive market at which the quantity demanded and the quantity supplied are equal, there is neither a shortage nor a surplus, and there is no tendency for price to rise or fall.

Equilibrium

A situation in which the market price has reached the level at which the quantity supplied = quantity demanded. (Intersection on the graph)

Shortage

A situation in which the quantity demanded is greater than the quantity supplied, happens when the market price is below the equilibrium price. Sellers would respond by increasing prices.

Law of Supply and Demand

The claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance