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23 Cards in this Set
- Front
- Back
The principle that, other things equal, an increase in a product's price will reduce the quantity of it demanded, and conversely for a decrease in price. As price falls, the quantity demanded rises, and as price rises, the quantity demanded falls.
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Law of Demand
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What are the three explanations for the Law of Demand?
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1. The law of demand is consistent with common sense.
2. Consumption is subject to diminishing marginal utility. 3. Income effect and substitution effect |
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The ______ _______ indicates that a lower price increases the purchasing power of a buyer's money income, enabling the buyer to purchase more of the product than she or he could buy before.
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Income effect
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The ________ ______ suggests that at a lower price buyers have the incentive to substitute what is now a less expensive product for similar products that are now relatively more expensive.
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Substitution effect
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Factors other than price that determine the quantities demanded of a good or service.
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Determinants of demand
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A change in the quantity demanded of a good or service at every price.
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Change in demand
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Increase in demand is shown as a shift of the demand curve to the ______.
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Right
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Decrease in demand occurs when consumers buy less at each possible price and is indicated by a ________ shift.
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Left
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A change in the quantity supplied of a good or service at every price.
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Change in supply
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A movement from one point to another point- from one price-quantity combination to another- on a fixed demand schedule or demand curve. The cause of such a change is an increase or decrease in the price of the product under consideration.
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Change in quantity demanded
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The principle that, other things equal, an increase in the price of a product will increase the quantity of it supplied, and conversely for a price decrease. As price rises, the quantity supplied rises; as price falls, the quantity supplied falls.
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Law of supply
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Factors other than price that determine the quantities supplied of a good or service.
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Determinants of supply
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What are the determinants of supply?
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1. Resource prices
2. Technology 3. Taxes and subsidies 4. Prices of other goods 5. Price expectations 6. Number of sellers |
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A change in the quantity supplied of a good or service at every price; a shift of the supply curve to the left or right.
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Change in supply
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A movement from one point to another on a fixed supply curve.
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Change in quantity supplied
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The amount by which the quantity supplied of a product exceeds the quantity demanded at a specific (above-equilibrium) price.
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Surplus
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The amount by which the quantity demanded of a product exceeds the quantity supplied at a particular (below-equilibrium) price.
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Shortage
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The price in a competitive market at which the quantity demanded and the quantity supplied are equal, there is neither a shortage nor a surplus, and tehre is no tendency for price to rise or fall.
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Equilibrium price or market-clearing
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(1) The quantity demanded and supplied at the equilibrium price in a competitive market; (2) the profit-maximizing output of a firm.
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Equilibrium quantity
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Supply is constant and demand increases. An increase in demand raises both equilibrium price and equilibrium quantity. Conversely, a decrease in demand reduces both equilibrium price and equilibrium quantity.
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Changes in demand
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Demand is constant but supply increases. The new intersection of supply and demand is located at a lower equilibrium price but at a higher equilibrium quantity. An increase in supply reduces equilibrium price but increases equilibrium quantity.
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Changes in supply
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Sets the maximum legal price a seller may charge for a product or service. The rationale is that they purportedly enable consumers to obtain some "essential" good or service that they could not afford at the equilibrium price.
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Price ceiling
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The minimum price fixed by the government. A price at or above this is legal; a price below it is not.
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Price floor
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