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Chapter 3 Key Terms
Vocabulary for Chapter 3 of CASE & FAIR
35
Economics
Undergraduate 1
01/31/2007

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Term
firm
Definition
an organization that transforms resources (inputs) into products (outputs). Firms are the primary producing units in a market economy
Term
entrepreneur
Definition
a person who organizes, manages, and assumes the risks of a firm, taking a new idea or a new product iand turning it into a successful business
Term
households
Definition
the consuming units in an economy
Term
product or output markets
Definition
the markets in which goods and services are exchanged
Term
input of factor markets
Definition
the markets in which the resources used to produce products are exchanged
Term
labor market
Definition
the input / factor market in which households supply work for wages to firms that demand labor
Term
capital market
Definition
the input / factor market in which households supply their savings, for interest or for claims to future profits, to firms that demand funds to buy capital goods
Term
land market
Definition
the input / factor market in which households supply land or other real property in exchange for rent
Term
factors of production
Definition
the inputs into the land production process. land, labor, and capital are the three key factors of production
Term
quantity demanded
Definition
the amount (number of units) of a product that a household would buy in a given period if it could buy all it wanted at the current market price
Term
demand schedule
Definition
a table showing how much of a given product a household would be willing to buy at different prices
Term
demand curve
Definition
a graph illustrating how much of a given product a household would be willing to buy at different prices
Term
law of demand
Definition
the negative relationship between price and quantity demanded: as price rises, quantity demanded increases. As price fails, quantity demanded increases
Term
utility
Definition
happiness or satisfaction
Term
income
Definition
the sum of all a household's wages, salaries, profits, interest payments, rents, and other forms of earnings in a given period of time. it is a flow measure
Term
wealth or net worth
Definition
the total value of what a household owns minus what it owes. it is a stock measure
Term
normal goods
Definition
goods for which demand goes up when income is higher and for which demand goes down when income is lower
Term
inferior goods
Definition
goods for which demand tends to fall when income rises
Term
substitutes
Definition
goods that can serve as replacements for one another; when the price of one increases, demand for the other goes up
Term
perfect substitutes
Definition
identical products
Term
complements, complementary goods
Definition
goods that "go together"; a decrease in the price of one results in an increase in demand of the other, and vice versa
Term
shift of a demand curve
Definition
the change that takes place in a demand curve corresponding to a new relationship between quantity demanded of a good and price of that good. the shift is brought about by a change in the original conditions
Term
movement along a demand curve
Definition
the change in quantity demanded brought about by a change in price
Term
market demand
Definition
the sum of all the quantities of a good or service demanded per period by all the households buying in the market for that good or service
Term
profit
Definition
the difference between revenues and costs
Term
quantity supplied
Definition
the amount of a particular product that a firm would be willing and able to offer for sale at a particular price during a given time period
Term
supply schedule
Definition
a table showing how much of a product firms will sell at different prices
Term
law of supply
Definition
the positive relationship between price and quantity of a good supplied: an increase in market prices will lead to an increase in quantity supplied, and a decrease in market price will lead to a decrease in quantity supplied.
Term
supply curve
Definition
a graph illustrating how much of a product a firm will sell at different prices
Term
movement along a supply curve
Definition
the change in quantity supplied brought about by a change in price
Term
shift of a supply curve
Definition
the change that takes place in a supply curve corresponding to a new relationship between quantity supplied of a good and the price of that good. the shift is brought about by a change in the original conditions
Term
market supply
Definition
the sum of all that is supplied each period by all producers of a single product
Term
equilibrium
Definition
the condition that exists when quantity supplied and quantity demanded are equal. at equilibrium, there is no tendency for price to change
Term
excess demand or shortage
Definition
the condition that exists when quantity demanded exceeds quantity supplied at the current price
Term
excess supply or surplus
Definition
the condition that exists when quantity supplied exceeds quantity demanded at the current price
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