Unit 2 - Supply and Demand Guide

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58 Terms

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PES
measures how sensitive are sellers to price changes on goods.
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Substitution effect
as the price of a good increases, consumers substitute the good with another that is cheaper.
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License
gives an owner the right to supply a good /service.
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Deadweight loss
transactions that should occur, but dont because of government intervention (calculate the area= triangle formula, ½ (base x height)
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Quota
upper limit of a quantity that can be bought or sold (known as quantity control)
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Subsidies
are the opposite of taxes and help reduce price per unit.
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Inferior good
increase in demand when consumers income decreases
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Equilibrium
occurs when no one is better off doing something else.
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Substitutes
good /service that can be used in place of another, when price of one increases, consumers will buy more of the other (ex.
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Complements
goods /services that are consumed together (ex.
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inverse impact
The cost of production (land, labor, capital) has a(n) ________ on the supply.
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large portion
Flat, quantity is sensitive to price change, substitutes, luxury items, ________ of income, not needed immediately.
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Elasticity
how much the Q is affected by P.
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Tariffs
tax placed on a good that is imported or exported.
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Quota rent
difference between demand price and supply price.
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Negative
= compliments (inferior good)
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positive
= substitutes (normal good)
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Shortage
Qs
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Double shift
either price or quantity will be unknown.
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Taxes
are added up to the unit cost of production, thus making it more expensive.
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Elastic demand
means that the goods are subject to be affected by a change in price.
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Inelastic demand
TR correlates direct with price.
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Normal good
increase in demand when consumers income increases (ex.
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market supply
The ________ shows the quantity a supplier is willing and able to offer at various prices at a given time.
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Elastic demand
TR correlates inversely with price.
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Inelastic demand
means that goods are not subject to be affected by a change in price.
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Demand
the quantity which a consumer/buyer are willing and able to buy at different prices
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Law of Demand
As price increases, demand decreases, and as price decreases, demand increases
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Substitutes
good/service that can be used in place of another, when price of one increases, consumers will buy more of the other (ex
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Substitution effect
as the price of a good increases, consumers substitute the good with another that is cheaper
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Complements
goods/services that are consumed together (ex
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Income effect
as income increases, people will buy more of normal goods, and less of inferior goods
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Normal good
increase in demand when consumers income increases (ex
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Inferior good
increase in demand when consumers income decreases (ex
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Diminishing marginal utility
As more units of a product are consumed, the satisfaction/utility it provides tends to decline
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Supply
different quantities of goods/services which sellers are willing and able to produce at a given price
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Law of supply
as price increases, quantity supplied also increases, this is a direct relation
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Inelastic demand
TR correlates direct with price
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Elasticity
how much the Q is affected by P
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PES
measures how sensitive are sellers to price changes on goods
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Inelastic
 unable to respond to price change
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Equilibrium
occurs when no one is better off doing something else
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Producer surplus
actual price -price the producer is willing to sell for
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Demand increase
price and quantity increase
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Demand decrease
price and quantity decrease
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Supply increase
price decreases, quantity increases
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Supply decrease
 price increases, quantity decreases
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Double shift
either price or quantity will be unknown
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Deadweight loss (DWL)
transactions that should occur, but dont because of government intervention (calculate the area = triangle formula, ½(base x height)
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Price floor
minimum price a supplier can charge, price is set above equilibrium (causes shortage)
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Price ceiling
maximum price a supplier can charge, price is set below equilibrium (causes surplus)
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Quota
upper limit of a quantity that can be bought or sold (known as quantity control)
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License
gives an owner the right to supply a good/service
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Demand price
the price at which consumers will demand that quantity
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Supply price
the price at which producers will supply that quantity
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Quota rent
difference between demand price and supply price
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Tariffs
tax placed on a good that is imported or exported
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Import quota
restriction on the quantity of a good that can be imported