Studied by 158 peopleDemand
the desire to own something and the ability to pay for it
Microeconomics
the study of how households and firms make decisions and how they interact in markets
Demand Schedule
a table that shows the relationship between the price of a good and the quantity demanded
Incentive
something that induces a person to act
Demand Curve
a curve that shows the relationship between the price of a product and the quantity of the product demanded
Law of Demand
consumers buy more of a good when its price decreases and less when its price increases
Marginal Utility
satisfaction or usefulness obtained from acquiring one more unit of a product
Diminishing Marginal Utility
Decreasing satisfaction or usefulness as additional units of a product are acquired
Price
Causes a change in demand
The Income Effect
the change in consumption that results when a price increase causes real income to decline
Substitution Effect
when consumers react to an increase in a good's price by consuming less of that good and more of other goods
Change in Demand
a shift of the demand curve, which changes the quantity demanded at any given price
Complementary Products
Items that are used in conjunction or bought together
Consumer Income, Future Expectations
What causes demand to change (rather than price)?
Elasticity of Demand
consumers' responsiveness or sensitivity to changes in price
Demand Elasticity
the extent to which a change in price causes a change in the quantity demanded
Elastic
describes demand that is very sensitive to a change in price
Inelastic
Describes demand that is not very sensitive to a change in price
Unit Elastic
a given change in price causes a proportional change in quantity demanded
Measure Elasticity
% of change in the quantity demanded/% of change in price
Expenditure
An amount of money spent.
Total Expenditures Test
it shows the impact of price change on total expenditures, determine elasticity. formula = p x qd
Capital Expenditure
money spent by a business or organization on acquiring or maintaining fixed assets, such as land, buildings, and equipment.
Revenue Expenditure
The payment of an operating expense necessary to earn revenue
Supply
The amount of goods available
Law of Supply
Tendency of suppliers to offer more of a good at a higher price
Supply Schedule
a table that shows the relationship between the price of a good and the quantity supplied
Supply Curve
A curve that shows the relationship between the price of a product and the quantity of the product supplied.
Market Supply Curve
a graph of the quantity supplied of a good by all suppliers at different prices
Quantity Supplied
the amount of a good that sellers are willing and able to sell
Change in Quantity Supplied
the change in amount offered for sale in response to a change in price
Change in Supply
a shift of the supply curve, which changes the quantity supplied at any given price
Cost, Producing, Technology, Taxes
What factors cause a change in supply?
Supply Elasticity
responsiveness of quantity supplied to a change in price
Elastic Supply
Exists when a small change in price causes a major change in quantity supplied.
Inelastic Supply
exists when a change in a good's price has little impact on the quantity supplied
Unit Elastic Supply
when the percentage change in the quantity supplied equals the percentage change in price
Production Function
the relationship between quantity of inputs used to make a good and the quantity of output of that good
Short Run
the period of time during which at least one of a firm's inputs is fixed
Long Run
the time period in which all inputs can be varied
Total Product
total output produced by the firm
Stages Of Production
phases of production that consist of increasing, decreasing, and negative returns
Stage 1
Increasing marginal returns
Stage 2
Decreasing marginal returns
Stage 3
Negative marginal returns
Fixed Cost
a cost that does not change, no matter how much of a good is produced
Overhead
broad category of fixed costs that includes interest, rent, taxes, and executive salaries
Variable Cost
a cost that rises or falls depending on how much is produced
Total Cost
fixed costs plus variable costs
Marginal Cost
the cost of producing one more unit of a good
Average Revenue
total revenue divided by the quantity sold
Total Revenue
the total amount of money a firm receives by selling goods or services
Marginal Revenue
the additional income from selling one more unit of a good; sometimes equal to price
Profit Maximization
A method of setting prices that occurs when marginal revenue equals marginal cost.
Break Even Point
the point at which the costs of producing a product equal the revenue made from selling the product
E-Commerce
the buying and selling of goods over the internet
Price
The amount of money exchanged for a good or service
Price as a Signal
Price sends messages to consumers and producers about whether to enter or leave a market e.g. high prices signal to producers to enter and consumers to leave.
Neutrality
policy of supporting neither side in a war
Flexibility
The ability to move your body parts through their full range of motion
Familiarity
A general sense that a certain stimulus has been encountered before.
Efficiency
The percentage of the input work that is converted to output work
Rationing
A limited portion or allowance of food or goods; limitation of use
Surplus
A situation in which quantity supplied is greater than quantity demanded
Shortage
A situation in which quantity demanded is greater than quantity supplied
Economic Model
a simplified version of reality used to analyze real-world economic situations
Equilibrium Price
the price that balances quantity supplied and quantity demanded
Market Structure
The nature and degree of competition among firms operating in the same industry.
Pure Competition
the market structure that exists when there are many small businesses selling one standardized product
Monopolistic Competition
a market structure in which many companies sell products that are similar but not identical
Product Differentiation
a positioning strategy that some firms use to distinguish their products from those of competitors
Non-price Competition
a way to attract customers through style, service, or location, but not a lower price
Oligopoly
A market structure in which a few large firms dominate a market
Collusion
secret agreement or cooperation
Price Fixing
an agreement among firms to charge one price for the same good
Monopoly
A market in which there are many buyers but only one seller.
Laissez Faire
Idea that government should play as small a role as possible in economic affairs.
Natural Monopoly
a market that runs most efficiently when one large firm supplies all of the output
Geographic Monopoly
a monopoly based on the absence of other sellers in a certain geographic area
Governmental Monopoly
When the government controls one, essential element of the economy.
Technological Monopoly
occurs when a firm controls a manufacturing method, invention, or type of technology
Market Failure
a situation in which a market left on its own fails to allocate resources efficiently
Five Main Causes of Market Failures
Not enough competition, not enough information, resources that cant or wont move, too few public goods, externalities or spillover effects
Not Enough Competition
Reduces efficient use of scarce resources
Not enough Information
Market cannot be efficient
Resources that can't or won't move
"Resource immobility" example supply chain issues
Too Few Public Goods
-public goods are produced by the gov. b/c in most cases the private sector will not/cannot produce them b/c there is not enough profit to be made in the production of those goods -examples: highways, police/fire protection, parks
Spillover Effects
uncompensated side effects that either benefit or harm a third party not involved in the activity that caused it
Externalities
A side effect of an action that affects a third party other than the buyer or seller.
Cost-Beneficial Analysis
a decision-making process in which you compare what you will sacrifice and gain by a specific action
2008 Financial Crisis
Occurred because of bad practices in the financial sector related to home mortgages. The government eventually bailed out the banks with over 700 billion dollars. the real estate bubble burst in the US, setting in motion a financial crisis of enormous proportions
Government Role in Market Structures
Ensure Competition, Protect Consumers, Regulation
Government Handling Monopolies
Breaking up monopolies 2. Preventing them from happening 3. Regulating existing monopolies
Trusts
Firms or corporations that combine for the purpose of reducing competition and controlling prices (establishing a monopoly). There are anti-trust laws to prevent these monopolies.
Sherman Antitrust Act
First federal action against monopolies, it was signed into law by Harrison and was extensively used by Theodore Roosevelt for trust-busting. However, it was initially misused against labor unions
Clayton Antitrust Act
1914 act designed to strengthen the Sherman Antitrust Act of 1890; certain activities previously committed by big businesses, such as not allowing unions in factories and not allowing strikes, were declared illegal.
Price Discrimination
the business practice of selling the same good at different prices to different customers
Cease and Desist Orders
Legally binding orders to stop a practice that would mislead the public
Economies of Scale
the property whereby long-run average total cost falls as the quantity of output increases
Public Disclosure
requirement forcing a business to reveal information about its products or its operations to the public
Note
Flashcard