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Chapter 4-6
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48
Economics
12th Grade
02/08/2013

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Term
Demand
Definition
All the quantities that consumers are willing and able to buy at different prices in a period of times.
Term
Law of Demand
Definition
- When price rises, quantity demanded falls
• Ceteris Paribus
- When price Falls, Quantity demanded rises.
Term
Diminishing marginal utility
Definition
satisfied less and less with each additional purchase.
a. Ex. Starving boy eats one slice of pizza at a time….
Term
Consumer tastes/preferences demand determinant
Definition
1. Income

2. Tastes/Preferences

3. Consumer Expectations

4. Market Size/ # Buyers

5. Complementary Goods

6. Substitute Goods
Term
Market size (# buyers) demand determinant
Definition
If # of buyers increases, then the Demand Increases

If # of Buyers decreases, then the Demand Decreases
Term
Income demand determinant (normal & inferior)
Definition
Normal Goods:
When income rises, demand increases
When income falls, demand decreases
Inferior Good:
When income rises, demand decreases
When Income falls, Demand increases
Term
Related goods demand determinant (subs & comps)
Definition
PB & J:
If Price of one rises, demand for the other decreases
If price of one falls, the demand for the other increases

Coke and Pepsi:
If price of one rises, demand for other increases.
If price of on falls, demand for other decreases.
Term
Consumer expectations demand determinant
Definition
If future price is expected to rise, current, demand increases.
If the future price is expected to fall, current demand decreases.
Term
Difference between demand & quantity demanded
Definition
quantity is directly effected by the price while regular is effected by factors listed.
Term
Elasticity of demand (definition & formulas)
Definition
a. Responsiveness by consumers
b. It measures the % change in quantity demanded that results from a % change in price
Term
Difference between elastic and inelastic
Definition
if there is little/no response to price change PED is said to be inelastic… If there’s a large response to price change, PED is said to be elastic.
Term
Perfectly elastic demand (def., graph, infinite)
Definition
infinite increases
Term
Relatively elastic demand (def., graph, >1)
Definition
gradual decrease in price and increase in quantity
Term
Perfectly inelastic demand (def., graph, = 0)
Definition
Term
Relatively inelastic demand (def., graph, <1 but >0)
Definition
Term
Unit elastic (definition)
Definition
any change in price, whether big or small, triggers exactly the same percentage change in quantity.
Term
Total revenue test
Definition
• Total revenue is the amount of money received by the seller
• It is equal to the price of the good X the quantity sold
o TR = P X Q
Term
Elastic Factors (5)
Definition
i. Number of substitute
ii. Luxury of necessity
iii. Narrowness of definition
iv. Time
v. Proportion of income spent
Term
Supply
Definition
All the quantities that producers are willing and able to provide at different prices in a period of time.
Term
Law of Supply
Definition
As prices fall…quantity supplied falls
As prices rise… quantity supplied rises….
*A Direct Relationship*
Term
Input cost supply determinant
Definition
1. Input Costs
2. Labor Productivity
3. Technology
4. Government Action
5. Producer Expectations
6. Number of Producers
Term
Government action supply determinant
Definition
a. If taxes increase, supply decreases (excise taxes)
b. With a subsidy (reverse tax), supply increases
Term
Technology supply determinant
Definition
a. Technology increases supply
Term
Labor Productivity supply determinant
Definition
a. Increasing productivity increases supply
Term
# Producers supply determinant
Definition
a. # of sellers rise, supply increases
b. # of sellers fall, supply decreases
Term
Producer expectations supply determinant
Definition
a. If the future price is expected to fall, increase current supply
b. If the future price is expected to rise, decrease current supply
Term
Difference between supply & quantity supplied
Definition
quantity is directly effected by the price while regular is effected by factors listed.
Term
Market Equilibrium
Definition
when quantity demand and supply are equal
Term
Surplus (excess supply)
Definition
too much supply, not enough demand
Term
Shortage (Excess demand)
Definition
not enough supply, too much demand.
Term
Price Floor (def, graph, examples)
Definition
Minimum legal, price helps producers…ex. Agriculture)
Term
Minimum Wage (def, graph, effects of)
Definition
Increases floor of wage and increases unemployment....
Term
Price ceiling (def, graph, examples)
Definition
Max Legal Price, helps consumer… ex. Rent controls, WWII)
Term
Rationing
Definition
o During WWII, Gov. dealt with shortage with rationing system
Term
Black Market
Definition
Selling a product at an illegal price
• Good intentions with bad consequences
Term
What happens to eq p/q if demand increases?
Definition
shift to right…. Equilibrium Price Increases and Equilibrium Quantity Increases
Term
What happens to eq p/q if demand decreases?
Definition
Equilibrium Price Decreases and Equilibrium Quantity Decreases
Term
What happens to eq p/q if supply increases?
Definition
Eq. P Decreases and Eq. Q Increases
Term
What happens to eq p/q if supply decreases?
Definition
Eq. P Increases and Eq. Q Decreases
Term
Positive statements/Economics
Definition
A way of describing and explaining economics as it is
Term
Normative Statements/Economics
Definition
A way of describing and explaining what economics behavior ought to be, not what it actually is.
Term
Scarcity
Definition
a situation that exists when there are not enough resources to meet human wants.
Term
Economics
Definition
the study of how individuals and societies satisfy their unlimited wants with limited resources.
Term
Resources/Factors of Production
Definition
the economic resources needed to produce goods and services
Term
Opportunity Cost
Definition
the value of something that is given up by choosing one alternative over another
Term
Production Possibilities Curve
Definition
a graph used to illustrate the impact of scarcity on an economy
Term
Public Good
Definition
Goods and services that are provided by the government and consumed by the public as a group.
Term
Externality (+ and -)
Definition
Negative: an externality that is a negative effect, or cost, for people who were not involved in the original economic activity. (2nd hand smoking)
Positive: people aren't involved but they benefit from it. (Neighbor has a beautiful garden/yard)
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