Competitive Market- market in which there are many buyers and sellers of the same good or service, none of whom can influence the price at which the good or service is sold

ex: Agriculture

Law of demand- states that a higher price for a good or service, other things being equal, leads people to demand a smaller quantity of that good or service

ex: People buy less product when they are expensive because they are limited by their income

Quantity demand- actual amount of a good or service consumers are willing and able to buy at some specific price; shown as a single point in the demand schedule along a demand curve

ex: How much utility a product brings someone as well as how much they are willing to spend on an item changes their quantity demanded of a product

Change in demand- a shift of the supply curve, which changes the quantity demanded at any given price

ex: Changes in trends or statistics about a product may shift the demand curve

Substitutes-two goods for which a rise in the price of one good leads to an increased demand for the other

ex: Coke and Pepsi

Complements- two goods often consumed together which a rise in price for one leads to a decrease in price of the other

ex: A phone and a phone case

Normal goods-rise in income increases demand for a good

ex: Starbucks coffee

Inferior goods- rise in income deceases demand for good (usually less desirable than normal good)

ex: Generic coffee from supermarket

Law of supply-states that all other being equal, the price and quantity supplies of a good are positively related

ex: the more expensive something is, the more the producer makes because it is more profitable, except in luxury item examples.

Quantity supplied-amount of a good or service people are willing to sell at some specific price

ex: Based on how much material and labor is put into a product, a company formulates a certain price they are able to sell a product to maximize profit

Change in supply- a shift of the supply curve, which changes the quantity supplied at any given price

ex: Changes in technology provide a change in supply.

Input-a good or service that is used to produce another good or service

ex: Water, fertilizer, soil, and seeds are inputs for crops

Equilibrium- an economic situation when no individual would be better off doing something different; a competitive market is in equilibrium when the price has moved to a level at which the quantity demanded of goods equals the quantity supplied of that good

ex: equilibrium is the most ideal spot to sell, or buy a product, but often isn’t achieved due to restrictions.

Surplus-when the quantity suppled of a good or service exceeds the quantity demanded(occurs when the price is above its equilibrium level)- aka excess supply

ex: A surplus of a product may be resolved by a sale.

Shortage-when the quantity of a good or service demanded exceeds the quantity supplied (occurs when the price is below its equilibrium level) -aka excess demand

ex: A shortage must be fixed by increasing the price of an item to lower demand, or an change in technology to increase supply.

Price controls-legal restrictions on how high or low a market price may go; typically take the form of either a price ceiling or a price floor

ex: To help keep housing prices for impoverished individuals low, a price ceiling is commonly placed below equilibrium for low-income housing options.

Price ceiling-a maximum price that sellers are allowed to charge for a good or service

ex: A price ceiling prevents sellers from charging unattainable prices for necessary goods or services

Price floor-a minimum price tat buyers are required to pay for a good or service

ex: A price floor ensures employers pay their employees at least minimum wage.

Black market-a market in which goods or service are bought and sold illegally- either because it is illegal to sell them at all or because the prices charged are legally prohibited by a price ceiling

ex: Because of regulations and restrictions, the Black market is used for individuals to make a profit on goods.

Quota- same as quantity control (upper limit on the quantity of some good being bought or sold)

ex: Supply quotas restrict how much of a product companies can produce, creating a purposeful shortage so the prices are forced to increase.

Deadweight loss-the value of foregone mutually beneficial transactions; from tax, the decrease in total surplus resulting from tax, minus the tax revenues generated.

ex: Deadweight loss is an inefficiency in economics that creates a shortage of a product.

Substitution effect-change in quantity of a good demanded as the consumer substitutes the good that has become relatively cheaper for the good that has become relatively more expensive

ex: When consumers have access to many similar products achieving the same goal, they pick the least expensive one because it satisfies their want or need, sacrificing the least amount of resources

Income effect- the change in the quantity of a good demanded that results from a change in the consumers purchasing power when the price of the good changes

ex: When consumers make less money, they consume more inferior goods, but as they make more money they consume less inferior goods and more normal goods

Elastic- price elasticity of demand greater than 1

ex: more horizontal line more vertical line on graph

Inelastic-price elasticity of demand less than 1

ex: more vertical line on graph

Unit elastic-price elasticity of demand is exactly 1

ex: midpoint of line on graph

Perfectly elastic- demand: when any price increase will cause the quantity demanded to drop to zero; when demanded is perfectly elastic, the demand curve is a horizonal line supply: when the quantity supplied is zero below some price and approaches infinity

ex: perfectly horizontal line on graph

Perfectly inelastic- demand: when the quantity demanded does not respond at all to changes in the price, when demand is perfectly inelastic and inelastic, the demand curve is a vertical line supply: when the price elasticity of supply is zero; so that changes i the price of the good have no effect on the quantity supplied; a perfectly inelastic supply curve is a vertical line

ex: perfectly vertical line on graph

Consumer surplus- the net gain received from purchasing a good or service; often used to refer to both individual consumer surplus and total consumer surplus

ex:

Producer surplus-refers to both individual and total producer surplus

ex:

Regressive tax-takes a larger percentage of income from low-income earners than from high-income earners

ex: sales tax

Proportional tax-tax that rises in proportion to income

ex: In some states, income tax is proportional

Progressive tax-tax that rises more than in proportion to income

ex: investment income taxes

Excise tax- rises less than in proportion with income

ex: alcohol and Tabaco taxes

Tax Incidence-distribution of tax burden

ex: Typically the poor are more burdened by taxes and therefore have a greater tax incidence.

Lump sum tax-tax of a fixed amount paid by all taxpayers, independent of the taxpayers income

ex: property taxes

Utility-measure of personal satisfaction

ex: How much satisfaction a product or service provides a consumer may allow them to purchase that good or service more

Optimal consumption rule-says in order to maximize utility, a consumer must equate the marginal utility per dollar spent on each good and service in the consumption bundle

ex: How to compare the value different products with different monetary values