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Chapter 2
Chapter 2
24
Economics
Graduate
01/10/2009

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Term
Supply curve
Definition
relationship between the quantity of a good that producers are willing to sell and the price of the good
Term
Demand curve
Definition
relationship between the quantity of a good that buyers are willing to purchase and the price of the good.
Term
Change in Supply/Change in demand
Definition
refers to shifts in the curve
Term
Change in quantity supplied/Change in quantity demanded
Definition
refers to movements along the curve
Term
Substitutes
Definition
two goods for which an increase in the price of one leads to an increase in the quantity demanded of the other
Term
Complements
Definition
Two goods for which an increase in the price of one leads to a decrease in the quantity demanded of another
Term
Market Equilibrium/Market clearing
Definition
QS=QD, where the supply/demand curves intersect, results in market price. has a corresponding quantity sold.
Term
Market mechanism
Definition
tendency in a free market for price to change until the market clears (QS=QD)
Term
Surplus/Consumer surplus
Definition
QS>QD, above the market price and below the demand curve
Term
Shortage
Definition
QD>QS
Term
Elasticity
Definition
percentage change in one variable resulting from a 1% increase in another.
Term
Price elasticity of demand
Definition
Percentage change in quantity demanded of a good resulting from a 1% increase in it's price.
Term
Linear demand curve
Definition
demand curve that is a straight line
Term
Infinitely elastic demand
Definition
consumers will buy as much of a good as they can get at a single price but for any higher price the quantity demanded drops to zero, while for any lower price the QD increases without limit.
Term
Completely inelastic demand
Definition
consumers will buy a fixed quantity of a good regardless of it's price
Term
Income elasticity of demand
Definition
percentage change in the QD resulting from a 1% increase in income.
Term
Cross-price elasticity of demand
Definition
percentage change in teh QD of one good resulting from a 1% increase in the price of another.
Term
Price elasticity of supply
Definition
percentage change in quantity supplied resulting from a 1% increase in price.
Term
Point elasticity of demand
Definition
price elasticity at a particular point on the demand curve.
Term
arc elasticity of demand
Definition
pice elasticity calculated over a range of prices.
Term
Cyclical industries
Definition
industires in which sales tend to magnify cyclical cahnges in GDP and national income.
Term
Price floor
Definition
government mandates a higher price than the market price. Results in QS>QD or surplus. ie. agricultural price supports
Term
Price ceiling
Definition
government mandates a price lower than market price. QD>QS, shortages occur. ie. rent controls
Term
Normal goods
Definition
those one buys more of when one's income rises
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