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32 Cards in this Set
- Front
- Back
demand
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a relation showing the quantities of a good that consumers are willing and able to buy at various prices per period, other things constant
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law of demand
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the quantity of a good demanded per period relates inversely to its price, other things constant
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three reasons why law of demand is true
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income effect: people by cheaper goods to increase their real income
substitution effect: the change in the relative price- the price of one good relative to the prices of other goods- causes the substitution effect law of diminishing marginal utility: the more of a good a person consumes per period, the smaller the increase in total utility from consuming one more unit, other things constant |
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demand curve
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a curve or line showing the quantities of a particular good demanded at various prices during a given time period, other things constant
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quantity demanded
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the amount demanded at a particular price
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elasticity of demand
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measures how responsive quantity demanded is to a price change; the percentage change in quantity demanded divided by the percentage change in price
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3 kinds of elasticity
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inelastic: the percent change in quantity demanded is less than the percent change in price, elasticity between 0 and 1
unit elastic: if demand is equal to one elastic: if demand is greater than 1 |
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elasticity and total revenue
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- if demand is elastic, lower price
- if demand is inelastic raise price |
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3 determinants of demand elasticity
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time, availability of substitutes, share of consumer budget spent on good
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movement along a demand curve
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quantity demanded changes
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shift of demand
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demand changes
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5 determinants of demand
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income, price of related goods, number of composition of consumers, consumer expectations, consumer tastes
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supply
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a relation showing the quantities of a good producers are willing and able to sell at various prices during a given period, other things constant
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law of supply
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the quantity of a good supplied during a given time period is usually directly related to its price, other things constant
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two reasons why law of supply is true
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willingness
ability |
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supply vs. quantity supplied
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supply- entire relation between the price and quantity supplied
quantity supplied- refers to a particular amount offered for sale at a particular price (a point on a supply curve) |
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elasticity of supply
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a measure of the responsiveness of quantity supplied to a price change; the percentage change in quantity supplied divided by the percentage change in price
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3 kinds of elasticity
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elastic- exceeds 1
unit elastic- =1 inelastic- between 0 and 1 |
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determinant of supply elasticity
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time
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movement along a supply curve
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quantity supplied changes
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shift of supply
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supply changes
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5 determinants of supply
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cost of resources, price of goods the resources could make, technology, producer expectations, number of sellers
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three stages of production
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-increasing marginal returns
-diminishing but positive marginal returns -negative marginal returns |
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market equilibrium
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where supply and demand intersect; shows market quantity and price
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disequilibrium
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-surplus is when supply exceeds demand (caused by price floor)
-shortage is when demand exceeds supply (caused by price ceiling) |
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shifts of demand curve
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given an upward sloping supply curve, a rightward shift of the demand curve increases both price and quantity, and a leftward shift of the demand curve decreases both price and quantity
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shifts of supply curve
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given a downward sloping demand curve, a rightward shift of the supply curve decreases price, but increases quantity, and a leftward shift of the supply curve increases price, but decreases quantity
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demand and supply increase
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EQ Price change is indeterminate
EQ Quantity increases |
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demand decreases, supply increases
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EQ Price falls
EQ Quantity change is indeterminate |
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demand increases, supply decreases
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EQ Price rises
EQ Quantity change is indeterminate |
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demand and supply decrease
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EQ price change is indeterminate
EQ quantity decreases |
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four market structures from most firms to least firms
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perfect competition, monopolistic competition, oligopoly, monopoly
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