Term
| Production Possibility frontier |
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Definition
Shows the trade-offs a country must make if it is already using all its productive resources but wants to make more of one good. In general, societies can not go past their production possibility frontier. Being with PPF is a waste of resources
Points along the curve describe the opportunity cost between two goods |
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Term
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Definition
| the entire relationship between price and quantity demanded over a given time period. Demand is never just a single number. |
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Term
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Definition
| the amount of a good consumers want to purchase at a specified price over a specified time period. QD is simply a number of goods, such as 18,000 apples. |
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Term
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Definition
| Consumers buy less of a good as its price increases and more of a good as its price decreases |
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Term
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Definition
| two goods (such as coke and Pepsi) are substitutes if an increase in the price of one good increases the demand for the other. The cheaper is it to consume one good, the less likely it is you will consume another. Compete with each other. |
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Term
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Definition
| go together. Two goods (such as cars and gas) are complements if an increase in the price of one good decreases the demand for the other. Buying a good’s compliment increases the liklihood that the consumer with purchase the other. |
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Term
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Definition
| an increase in the price of a good’s substitute will increase demand for the good |
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Term
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Definition
| an increase in the price of the good complement will increase demand for the good |
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Term
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Definition
| the amount of a good suppliers want to produce at a given price over a specified time period. Quantity supplied is a single number, such as 15,000 apples. |
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Definition
| the entire relationship between price and quantity supplied over a specified time period. Never a single number |
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Term
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Definition
| Firms produce less of a good as its price falls and more of a good as its price increases |
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Term
| When does a surplus occur? |
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Definition
| Whenever quantity supplied is greater then quantity demanded |
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Term
| How do markets react to surpluses? |
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Definition
| markets lower prices, thereby increasing quantity demanded and decreasing quantity supplied |
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Term
| 2 characteristics of supply and demand equilbria |
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Definition
1) a market at equilibrium will stay at equilibrium unless distrubed by outside forces that shift the supply or demand curves
2) a market not at equilibrium will move toward equilibrium |
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Term
| What does price elasticity of demand measure? |
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Definition
| Responsiveness in change in price. Percentage change in QD over percentage change in price |
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Term
| What does it mean if price elasticity is greater then 1? |
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Definition
| then demand is elastic, if its less then 1 demand is inelastic and if it equals 1 its unit elastic. |
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Term
| Shape of a perfectly inelastic demand curve |
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Definition
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Term
| Shape of a perfectly elastic demand curve |
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Definition
| 4. Completely horizontal. The flatter a demand curve is the smaller the price change that you need to radically change QD |
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