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Economics – Chapter 7 – Demand & Supply

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demand
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the amount of a good or service that consumers are able and willing to buy at various possible prices during a specified time period
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supply
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the amount of a good or service that producers are able and willing to sell at various prices during a specified time period
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market
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the process of freely exchanging goods and services between buyers and sellers
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voluntary exchange
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a transaction in which a buyer and a seller exercise their economic freedom by working out their own terms of exchange
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law of demand
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economic rule stating that the quantity demanded and price move in opposite directions
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quantity demanded
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the amount of a good or service that a consumer is willing and able to purchase at a specific price
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real income effect
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economic rule stating that individuals cannot keep buying the same quantity of a product if its price rises while their income stays the same
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substitution effect
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economic rule stating that if two items satisfy the same need and the price of one rises, people will buy the other
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utility
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the ability of any good or service to satisfy consumer wants
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marginal utility
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an additional amount of satisfaction
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law of diminishing marginal utility
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rule stating that the additional satisfaction a consumer gets from purchasing one more unit of a product will lessen with each additional unit purchases
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demand schedule
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table showing quantities demanded at different possible prices
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demand curve
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downward-sloping line that shows in graph form the quantities demanded at each possible price
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complementary good
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a product often used with another product
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elasticity
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economic concept dealing with consumers’ responsiveness to an increase or decrease in price of a product
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price elastic of demand
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economic concept that deals with how much demand varies according to changes in price
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elastic demand
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situation in which the rise or fall in a product’s price greatly affects the amount that people are willing to buy
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inelastic demand
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situation in which a product’s price change has little impact on the quantity demanded by consumers
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law of supply
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economic rule stating that price and quantity supplied move in the same direction
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quantity supplied
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the amount of a good or service that a producer is willing and able to supply at a specific price
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supply schedule
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table showing quantities supplied at different possible prices
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supply curve
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upward-sloping line that shows in graph form the quantities supplied at each possible price
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technology
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any use of land, labor, and capital that produces goods and services more efficiently
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law of diminishing returns
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economic rule that says as more units of a factor of production are added to other factors of production, after some point total output continues to increase but at a diminishing rate
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equilibrium price
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the price at which the amount producers are willing to supply is equal to the amount consumers are willing to buy
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shortage
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situation in which the quantity demanded is greater than the quantity supplied at the current price
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surplus
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situation in which quantity supplied is greater than quantity demanded at the current price
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price ceiling
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a legal maximum price that may be charged for a particular good or service
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rationing
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the distribution of goods and services based on something other than price
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black market
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“underground” or illegal market in which goods are traded at prices above their legal maximum prices or in which illegal goods are sold
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price floor
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a legal minimum price below which a good or service may be sold