Economics: Unit 2 How Markets Work – Flashcards
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The desire to own something and the ability to pay for it
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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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Law of Demand
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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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Substitution effect
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the change in consumption that results when a price increase causes real income to decline
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income effect
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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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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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market demand schedule
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a graphic representation of a demand schedule
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demand curve
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a Latin phrase that means, "all other things held constant."
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ceteris paribus
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a good that consumers demand more of when their incomes increase
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normal goods
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a good that consumers demand less of when their incomes increase
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inferior goods
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the statistical characteristics of populations and population segments, especially when used to identify consumer markets
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demographics
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two goods that are bought and used together
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complements
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goods that are used in place of one another
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substitutes
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a measure of how consumers respond to price changes
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elasticity of demand
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describes demand that is not very sensitive to price changes
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inelastic
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describes demand that is very sensitive to a change in price
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elastic
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describes demand whose elasticity is exactly equal to 1
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unitary elastic
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the total amount of money a company receives by selling goods or services
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total revenue
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the amount of goods available
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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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law of supply
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the amount that a supplier is willing and able to supply at a specific price
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quantity supplied
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a chart that lists how much of a good a supplier will offer at various prices
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supply schedule
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a factor that can change
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variable
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a chart that lists how much a good all suppliers will offer at various prices
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market supply schedule
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a graph of the quantity supplied of a good at various prices
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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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market supply curve
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a measure of the way quantity supplied reacts to a change in price
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elasticity of supply
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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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increasing marginal returns
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a level of production at which the marginal product of labor decreases as the number of workers increases
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diminishing marginal returns
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a cost that does not change, no matter how much of a good is produced
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fixed cost
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a cost that rises or falls depending on the quantity produced
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variable cost
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the sum of fixed costs plus variable costs
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total cost
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the cost of producing one more unit of a good
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marginal cost
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the additional income from selling one more unit of a good; sometimes equal to price
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marginal revenue
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the total cost divided by the quantity produced
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average cost
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the cost of operating a facility, such as a factory or a store
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operating cost
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a government payment that supports a business or market
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subsidy
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a tax on certain goods made in this country
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excise tax
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government intervention in a market that affects the production of a good
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regulation
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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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equilibrium
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any price or quantity not at equilibrium; when quantity supplies is not equal to quantity demanded in a market
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disequilibrium
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when quantity demanded is more than quantity supplied
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shortage
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when quantity supplied is more than quantity demanded
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surplus
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a maximum price that can legally be charged for a good or service
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price ceiling
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a price ceiling placed on apartment rent
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rent control
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a minimum price for a good or service
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price floor
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a minimum price that an employer can pay a worker for one hour of labor
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minimum wage
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the quantity of goods that a firm has on hand
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inventory
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a product that is popular for a short period of time
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fad
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the financial and opportunity costs that consumers pay when searching for a good or service
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search costs
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a sudden shortage of a good
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supply shock
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a system of allocating scarce goods and services using criteria other than price
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rationing
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a market in which goods are sold illegally, without regard for government controls on price or quantity
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black market
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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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perfect competition
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a product, such as petroleum or milk, that is considered the same no matter who produces or sells it
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commodity
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any factor that makes it difficult for a new firm to enter a market
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barrier to entry
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a market structure that fails to meet the conditions of perfect competition
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imperfect competition
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the expenses a new business must pay before it can begin to produce and sell goods
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start-up cost
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a market in which a single seller dominates
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monopoly
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factors that cause a producer's average cost per unit to fall as output rises
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economies of scale
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a market that runs most efficiently when one large firm supplies all the output
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natural monopoly
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a monopoly created by the government
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government monopoly
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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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patent
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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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franchise
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a government-issued right to operate a business
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license
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the division of consumers into groups based on how much they will pay for a good
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price discrimination
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the ability of a company to control prices and total market output
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market power
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a market structure in which many companies sell products that are similar but not identical
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monopolistic competition
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making a product different from other, similar products
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differentiation
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a way to attract customers through style, service, or location, but not a lower price
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nonprice competition
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a market structure in which a few large firms dominate a market
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oligopoly
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a series of competitive price cuts that lowers the market price below the cost of production
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price war
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an illegal agreement among firms to divide the market, set prices, or limit production
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collusion
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an agreement among firms to charge one price for the same good
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price fixing
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a formal organization of producers that agree to coordinate prices and production
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cartel
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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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predatory pricing
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laws that encourage competition in the marketplace
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antitrust laws
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an illegal grouping of companies that discourages competition, similar to a cartel
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trust
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when two or more companies join to form a single firm
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merger
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the removal of some government controls over a market
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deregulation
