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econ ch 3/4
ds
34
Economics
12th Grade
03/03/2013

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Term
law of demand
Definition
(inverse relationship) price up --> demand down
Term
income effect
Definition
people have a fixed income and as price changes, people must make changes to afford products based on their income
Term
substitution effect
Definition
when people realize their fixed income doesn't allow them to buy certain things, they look for substitutes
Term
diminishing marginal utility
Definition
each successive unit has less marginal utility
Term
Nonprice Demand Determinants (things that can change demand)
Definition
-change in income (income up --> demand up)
-change in consumers (population shift)
-tastes/preferences
-price of related goods (substitutes/complements)
-future expectations
Term
law of supply
Definition
(direct relationship)
price up --> quantity supplied up
Term
nonprice supply determinants
Definition
-cost/availability of resources (more availability --> line shifts right. min wag increase --> shifts left)
-change in # of producers
-technology
-government intervention (taxes, regulations, and subsidies which shifts right)
-future expectations
Term
market equilibrium
Definition
if NO government intervention, suppliers/demanders will find an equilibrium
Term
SURPLUS
Definition
price is ABOVE equilibrium --> price drops to get rid of surplus
Qd down/ Qs up --> Qd less than Qs
Term
SHORTAGE
Definition
price is below equilibrium --> price increases since there's less things (rare)
Qd up / Qs down --> Qd greater than Qs
Term
Government intervention
Definition
price floors/price ceilings
Term
price floor
Definition
leads to SURPLUS
set price floor is ABOVE equilibrium (prices can't be lower than set price)
Price up --> Qd down --> Qs up
Term
price ceiling
Definition
leads to SHORTAGE
set price ceiling is BELOW equilibrium
(prices can't be higher than set price)
price down --> Qd up --> Qs down
Term
output limitations
Definition
can only be supplied a certain amount
(typically crops/agricultural products)
Term
double shifts
Definition
demand and supply shift
Term
demand down supply up
Definition
leads to price down and Q as indeterminant
Term
demand up and supply up
Definition
leads to price as indeterminant and quantity up
Term
demand down and supply down
Definition
leads to price as indeterminant and quantity down
Term
demand up and supply down
Definition
leads to price up and quantity as indeterminant
Term
normal goods
Definition
products people can buy with good income
(income up --> demand up)
Term
inferior goods
Definition
things people have to buy due to low income
(income up --> demand down)
Term
inelastic slope
Definition
percent of change in price is greater than the percent of change in quantity demanded
Term
elastic slope
Definition
percent of change in price is less than the percent of change in quantity demanded
Term
inelastic characteristics
Definition
-necessity -not many other options -small part of budget
Term
elastic characteristics
Definition
-luxury goods
-many other options
-larger part of budget
Term
total revenue
Definition
TR = P times Q
Term
inelastic revenue
Definition
-price up --> Qd down but because Qd is smaller anyway --> TR up
-price down --> Qd up but because Qd is smaller anyway --> TR down
(DIRECT relationship)
Term
elastic revenue
Definition
-price up --> Qd down but because Qd is bigger anyway --> TR down -price down --> Qd up but because Qd is bigger anyway --> TR up (INVERSE relationship)
Term
elasticity of demand coefficient
Definition

[image]

 

Ed = 1 --> unit elastic 

Ed less than 1 --> inelastic demand

Ed greater than 1 --> elastic demand 

Term
elasticity of supply coefficient
Definition

(same thing as demand formula but for quantity supplied)

 

Es = 1 --> unit elastic

Es greater than 1 --> supply elastic

Es less than 1 --> supply inelastic 

Term
short run
Definition
one of the FOPs is fixed (steeper slope)
Term
long run
Definition
none of the FOPs are fixed
(shallower slope)
Term
perfectly inelastic slope
Definition
either demand curve or supply curve is vertical
Term
perfectly elastic slope
Definition
either demand curve or supply curve is horizontal
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