Unit 2: Microeconomics, The US Economy

Market

buyers and sellers coming together to exchange goods, services, and/or resources 

Demand Curve

the graphic representation of the quantity of a good or service that buyers are willing and able to buy at all possible prices during a certain time period

Supply Curve

the graphic representation of the quantity of a good or service that producers are willing and able to sell at all possible prices during a certain time period

Equilibrium Price

the price at which quantity supplied and quantity demanded are equal

Equilibrium Quantity

the quantity of a good or service supplied and demanded at the equilibrium price

Revenue

money received; income

Profit

the amount of revenue that remains after a business pays the costs of producing a good or service

Costs of Production

costs a firm incurs from manufacturing a product or providing a service 

Marginal Principle

Another term for marginal principle is marginal analysis - examination of the additional benefits of an activity compared to the additional costs incurred by that same activity.

Law of Supply

As price goes up, quantity supply goes up (because there’s less demand)

Law of Demand

As price goes up, quantity demand goes down (because the price makes it less accessible

INSECT stands for in relation to demand shift…

Income

Number of Buyers

Substitutes

Expectations

Complements

Tastes

Normal Goods

As income increases, demand increases (right demand shift)

Inferior Goods

As income increases, demand decreases (left demand shift)

Number of Buyers

As population increases, demand increases (right demand shift)

Substitutes (price of related goods)

As price increases for one item, the demand increases for the other item because it’s more accessible (right demand shift)

What does INSECT mean by Expectations?

Expectations about the future 

What consumers think is going to happen shifts their behavior now

Expectations (Future Prices)

Because price will increase in the future, demand increases now (right demand shift)

OR

Because income will increase in the future, demand increases for normal goods

Complements (prices of related goods)

Two product for when one price goes up, the other’s demand goes down (left demand shit) because you can’t buy one good without the other.

Tastes

As tastes shift towards a good, the demand will increase (right demand shift)

Shortage

When the demand for a good is too much for the supply of the good. This increases the price of the good.

Surplus

When there is too much supply for the lack of demand. The price would decrease in order to move product.