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AP Economics Unit 1, Chapter 3: Demand, Supply, and Market Equilibrium

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demand
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a schedule or curve showing various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices during a specific period of time, reflecting the marginal benefit of a product
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demand schedule
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shows what a single consumer is willing to pay for a product at various prices
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law of demand
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for consumers, there is an inverse relationship between quantity demanded and price because marginal benefit decreases as quantity bought increases
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diminishing marginal utility
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with each successive unit of a particular product, the marginal benefit decreases
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income effect
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caused by a lowering of price that induces a consumer to purchase more of that product, all other things equal
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substitution effect
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caused by a rise in price that induces a consumer to buy more of a less-expensive product, all other things equal
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demand curve
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a graphical representation of the inverse relationship represented by the demand schedule, with quantity as the independent and price as the dependent variable
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determinants of demand
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factors that shift the demand curve and violate “all other things equal” assumption — consumer tastes, number of buyers, consumer income, price of related goods, consumer expectations
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normal goods
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products whose demand vary directly with income
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inferior goods
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products whose demand vary inversely with income
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substitute goods
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products that replace another, inversely varying supply and demand
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complementary goods
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products that are used together with another good, directly varying supply and demand
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independent goods
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products whose demands do not vary at all with each other
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change in demand
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a shift of the entire demand curve to the right or left, caused by determinants of demand
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change in quantity demanded
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a shift of a point in the demand curve, caused by varying prices
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supply
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a schedule or curve showing the various amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices during a specified period, reflecting a marginal cost of a good
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supply schedule
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shows what a single producer is willing to supply a product at various prices
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law of supply
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for suppliers, there is a direct relationship between quantity supplied and price because the marginal costs decrease as quantity suppliedincreases
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supply curve
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a graphical representation of the direct relationship represented by the supply schedule, with quantity as the independent and price as the dependent variable
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determinants of supply
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factors that shift the supply curve and violate “all other things equal” assumption — resource prices, technology, consumer income, taxes and subsidies, prices of other goods, producer expectations, number of sellers
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change in supply
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a shift of the entire supply curve to the right or left, caused by determinants of supply
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change in quantity supplied
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a shift of a point in the demand curve, caused by varying prices
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equilibrium price
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the price wherein the intentions of buyers and sellers match
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equilibrium quantity
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the quantity demanded and supplied at the equilibrium price
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surplus
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when more products are produced than are bought, caused by higher than equilibrium price
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shortage
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when more products are bought than sold, caused by lower than equilibrium price
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productive efficiency
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the production of any particular good in the least costly way, caused by competition
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allocative efficiency
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the particular mix of goods and service most highly valued by society, caused by competition
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price ceiling
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a maximum legal price a seller can charge, causing a constant shortage and black market
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price floor
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a minimum legal price a seller can charge, causing a constant surplus and problems in allocation