Economics – Unit 2, Chapters 4-7 Vocabulary

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4.1: 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 will buy more of a good when its price is lower and less when its price is higher.
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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 a substitute good.
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Income Effect
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The change in consumption that results when a price increase causes real income to decline.
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Demand Schedule
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A table that lists the quantity of a good a person will buy at various prices in a market.
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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 various prices.
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Demand Curve
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A graphic representation of a demand schedule.
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4.2: Ceteris Paribus
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A Latin phrase that means “all things held under constraint.”
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Normal Good
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A good that consumers demand more of when their income increases.
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Inferior Good
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A good that consumers demand less of when their income increases.
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Demographics
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The statistical characteristics of populations and population segments, especially when used to identify consumer markets.
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Complements
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Two goods that are bought and used together.
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Substitutes
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Goods that are used in place of one another.
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4.3: Elasticity of Demand
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A measure of how consumers respond to price changes.
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Inelastic
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Describes demand that is not very sensitive to price changes.
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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 company receives by selling goods or services.
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5.1: Supply
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The amount of goods available.
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Law of Supply
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Producers offer more of a good as its price increases and less as its price falls.
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Quantity Supplied
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The amount that a supplier is willing and able to supply at a specific 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 various 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 various prices.
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Supply Curve
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A graph of the quantity supplied of a good at various 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 various prices.
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Elasticity of Supply
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A measure of the way quantity supplied reacts to a change in price.
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5.2: 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 and falls depending on the quantity produced.
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Total Cost
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The sum of 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.
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Average Cost
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The total cost divided by the quantity produced.
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Operating Cost
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The cost of operating a facility.
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5.3: 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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Regulations
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Government intervention in a market that affects the production of a good.
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6.1: Equilibrium
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The point at which the demand for a product or service is equal to the supply of that product or service.
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Disequilibrium
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Any price or quantity not at equilibrium.
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Shortage
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When quantity demanded is more than quantity supplied.
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Surplus
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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 legally be charged for a good or service.
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Rent Control
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A price ceiling placed on apartment rent.
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Price Floor
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A minimum price for a good or service.
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Minimum Wage
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A minimum price that an employer can pay a worker for one hour of labor.
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6.2: Inventory
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The quantity of goods that a firm has on hand.
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Fad
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A product that is popular for a short period of time.
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Search Costs
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The financial and opportunity costs that consumers pay when searching for a good or service.
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6.3 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, without regard for government controls on price quantity.
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What causes demand to shift?
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1. Tastes 2. Expectations 3. Preferences 4. Advertisement 5. Substitutes 6. Income 7. Complements
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What causes supply to shift?
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What Shifts Supply: 1. Input Costs 2. Natural Disasters 3. Expect Price Increase 4. Global Economy 5. Tech 6. Regulation 7. Subsidy
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Chapter 7.1: Perfect Competition
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A market structure in which a large number of firms all produce the same product and no single seller controls supply or prices.
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Commodity
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A product that is considered the same no matter who produces or sells it.
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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 fails to meet the conditions of perfect competition.
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Start Up-Costs
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The expenses a new business must pay before it can begin to produce and sell goods.
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7.2: Monopoly
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A market in which a single seller dominates.
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Economies of Scale
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Factors that cause a producer’s average cost per unit to fall 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 inventor of a new product the exclusive right to sell it for a specific period of time.
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Franchise
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A contract that gives a single firm the right to sell its goods 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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The division of consumers 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 control prices and total market output.
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7.3: 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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Non-price Competition
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A way to attract customers 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 illegal 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 good.
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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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7.4: Predatory Pricing
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Selling a product below cost for a short period of time to drive competitors out of the market.
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Antitrust Law
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Laws that encourage competition in the marketplace.
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Trust
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An illegal grouping of companies that discourages competition.
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Merger
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When two or more companies join to form a single firm.
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Deregulation
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The removal of some government controls over a market.
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*Extra information that might be extra credit What act prevents monopolies?
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The Sherman Anti-Trust Act of 1890
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*Extra information that might be extra credit What is the law in Michigan in which 10% of Michigan’s energy comes from renewable resources?
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The Clean, Renewable, and Efficient Energy Act

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