unit 2 terms

<<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

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