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Chapter 4 5 6 7 Economics

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Demand
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The desire to own something and the ability to pay for it.
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Law of Demand
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Consumers buy more of a good when its price decreases and less when its price increases.
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Substitution Effect
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When consumers react to an increase in a good’s price by consuming less of that good and more of other goods.
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Income Effect
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The change in consumption resulting from a change in real income.
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Demand Schedule
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A table that lists the quantity of a good a person will buy at each different price.
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Market Demand Schedule
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A table that lists the quantity of a good all consumers in a market will buy at each different price.
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Demand Curve
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A graphic representation of a demand schedule.
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Ceteris Paribus
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A Latin phrase that means “all other things held constant.”
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Normal Good
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A good that consumers demand more of when their incomes increase.
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Inferior Good
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A good that consumer demands less of when their incomes increase.
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Complements
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Two goods that are bought and used together.
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Substitute
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Goods used in place of one another.
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Elasticity of Demand
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A measure of how consumers react to a change in price.
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Inelastic
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Describes demand that is not very sensitive to a change in price.
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Elastic
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Describes demand that is very sensitive to a change in price.
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Unitary Elastic
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Describes demand whose elasticity is exactly equal to 1.
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Total Revenue
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The total amount of money a firm receives by selling goods or services.
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Supply
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The amount of goods available.
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Law of Supply
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Tendency of suppliers to offer more of a good at a higher price.
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Quantity Supplied
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The amount of a supplier is willing and able to supply at a certain price.
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Supply Schedule
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A chart that lists how much of a good a supplier will offer at at difference prices.
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Variable
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A factor that can change.
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Market Supply Schedule
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A chart that lists how much of a good all suppliers will offer at different prices.
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Supply Curve
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A graph of the quantity supplied of a good at different prices.
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Market Supply Curve
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A graph of the quantity supplied of a good by all suppliers at different prices.
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Elasticity of Supply
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A measure of the way quantity reacts to a change in price.
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Marginal Product of Labor
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The change in output from hiring one additional unit of labor.
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Increasing Marginal Returns
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A level of production in which the marginal product of labor increases as the number of workers increases.
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Diminishing Marginal Returns
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A level of production in which the marginal product of labor decreases as the number of workers increases.
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Fixed Cost
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A cost that does not change, no matter how much of a good is produced.
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Variable Cost
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A cost that rises or falls depending on how much is produced.
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Total Cost
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Fixed costs plus variable costs.
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Marginal Cost
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The cost of producing one more unit of a good.
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Marginal Revenue
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The additional income from selling one more unit of a good, sometimes equal to price.
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Operating Cost
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The cost of operating a facility, such as a store or factory.
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Subsidy
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A government payment that supports a business or market.
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Excise Tax
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A tax on the production or sale of a good.
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Regulation
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Government intervention in a market that affects the production of a good.
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Equilibrium
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The point at which quantity demanded and quantity supplied are equal.
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Disequilibrium
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Describes any price or quantity not at equilibrium; when quantity supplied is not equal to quantity demanded in a market.
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Excess Demand
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When quantity demanded is more than quantity supplied.
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Excess Supply
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When quantity supplied is more than quantity demanded.
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Price Ceiling
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A maximum price that can be legally charged for a good or service.
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Price Floor
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A minimum price for a good or service.
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Rent Control
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A price ceiling placed on rent.
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Minimum Wage
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A minimum price that an employer can pay a worker for an hour of labor.
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Shortage
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Situation in which quantity demanded is greater than quantity supplied; also known as excess demand.
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Search Costs
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The financial and opportunity costs consumers pay when searching for a good or service.
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Supply Shock
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A sudden shortage of a good.
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Rationing
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A system of allocating scarce goods and services using criteria other than price.
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Black Market
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A market in which goods are sold illegally.
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Spillover Costs
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Costs of production that affect people who have no control over how much of a good is produced.
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Perfect Competition
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A market structure in which a large number of firms all produce the same product.
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Commodity
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A product that is the same no matter who produces it, such as petroleum, notebook paper, or milk.
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Barrier to Entry
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Any factor that makes it difficult for a new firm to enter a market.
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Imperfect Competition
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A market structure that does not meet the conditions of perfect competition.
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Start-up Costs
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The expenses a firm must pay before it can begin to produce and sell goods.
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Monopoly
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A market dominated by a single seller.
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Economies of Scale
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Factors that cause a producer’s average cost per unit to gall as output rises.
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Natural Monopoly
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A market that runs most efficiently when one large firm supplies all of the output.
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Government Monopoly
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A monopoly created by the government.
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Patent
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A license that gives the inventors of a new product the exclusive right to sell it for a certain period of time.
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Franchise
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The right to sell a good or service within an exclusive market.
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License
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A government issued right to operate a business.
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Price Discrimination
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Division of customers into groups based on how much they will pay for a good.
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Market Power
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The ability of a company to change prices and output like a monopolist.
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Monopolistic Competition
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A market structure in which many companies sell products that are similar but not identical.
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Differentiation
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Making a product different from other similar products.
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Nonprice Competition
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A way to attract costumers through style, service, or location, but not a lower price.
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Oligopoly
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A market structure in which a few large firms dominate a market.
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Price War
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A series of competitive price cuts that lowers the market price below the cost of production.
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Collusion
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An agreement among firms to divide the market, set prices, or limit production.
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Price Fixing
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An agreement among firms to charge one price for the same goods.
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Cartel
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A formal organization of producers that agree to coordinate prices and production.
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Predatory Pricing
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Selling a product below cost to drive competitors out of the market.
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Antitrust laws
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Laws that encourage competition in the marketplace.
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Trust
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Like a cartel, an illegal grouping of companies that discourages competitions.
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Merger
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Combination of two or more companies into a single firm.
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Deregulation
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The removal of some government controls over a market.