Unit 2 Study Guide [ECONOMICS]

Demand
Combination of DESIRE, ABILITY, and WILLINGNESS to buy a product.
Supply
Schedule of quantities offered for sale at ALL possible prices in a market.
Law of Supply
Rule stating that MORE will be OFFERED FOR SALE at HIGHER prices than at lower prices.
Law of Demand
Rule stating that MORE will be DEMANDED at LOWER prices and less at higher prices; inverse relationship between price and quantity demanded.
Elasticity
A measure of responsiveness that tells us how a dependent variable such as quantity responds to a change in an independent variable such as price.
Demand Elasticity
A measure of responsiveness relating change in quantity demanded to a change in price.
Inelastic Demand
A situation in which an increase or a decrease in price will not significantly affect the quantity demanded for a product.
Elastic Demand
A situation in which an increase or a decrease in price will significantly affect the quantity demanded for a product.
Unit Elastic
A situation in which an increase or a decrease in price will proportionally affect the quantity demanded for a product.
Substitutes
Competing products that can be used in place of one another; products related in such a way that an increase in the price of one increases the demand for the other.
Compliments
Products that increase the value of other products; products related in such a way that an increase in the price of one reduces the demand for both.
Change in Quantity Demanded
MOVEMENT along the demand curve showing that a different quantity is purchased in response to a change in price.
Change in Quantity Supplied
Change in amount offered for sale in response to a price change; MOVEMENT along the supply curve.
Change in Demand
Consumers demand different amounts at EVERY price, causing the demand curve to SHIFT to the left or the right.
Change in Supply
Different amounts offered for sale at each and every possible price in the market; SHIFT of the supply curve.
Subsidy
Government payment to encourage or protect a certain economic activity.
Demand Curve
Graph showing the QUANTITY DEMANDED at each and every possible price that might prevail in the market at any given time.
Supply Curve
Graphical representation of the quantities produced at each and every possible price in the market.
Market Equilibrium
Condition of price stability where the quantity demanded equals the quantity supplied.
Equilibrium Price
Price where quantity supplied equals quantity demanded; price that clears the market.
Equilibrium Quantity
The quantity supplied and the quantity demanded at the equilibrium price.
Surplus
A situation in which quantity supplied is greater than quantity demanded at a given price.
Shortage
A situation in which quantity demanded is greater than the quantity supplied at a given price.
Marginal Utility
Satisfaction or usefulness obtained from acquiring one more unit of a product.
Increasing Marginal Utility
Increasing satisfaction or usefulness as additional units of a product are acquired.
Diminishing Marginal Utility
Decreasing satisfaction or usefulness as additional units of a product are acquired.
Substitution Effect
The portion of a change in quantity demanded due to a change in the relative price of the product.
Income Effect
The portion of a change in quantity demanded caused by a change in a consumer’s real income when the price of a product changes.
Market Supply Curve
Supply curve that shows the quantities offered at various prices by ALL firms that sell the product in a given market.