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21 Cards in this Set
- Front
- Back
Demand shows what in terms of consumers?
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Their willingness and ability to purchase a product at each possible price level during a spicified period of time
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If specific time (like 'per week' is not stated?
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Cannot tell whether demand for product is large or small
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Law of Demand States (see graph)
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As price level falls, Quantity Demanded Increases and Vice Versa if price level rises
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Law of diminishing marginal utility states?
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Buyer of product will derive less utility from each successive unit of the product consumed
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Income effect?
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Lower price increases Purchasing power of buyer's money income.
Vice Versa with higher price |
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Substitution effect?
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At lower price, buyers have incentive to substitute less expensive product for similar products that are more expensive.
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What are the 5 determinants of demand?
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Tastes (Preferences)
Expectations Prices of Related Goods Number of Buyers Income |
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Normal Goods?
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"Superior Goods" whose demand varies DIRECTLY with money income. (i.e electronic equipment)
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Inferior Goods?
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Goods whose demand varies INDIRECTLY with money income. (i.e Used clothing)
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Substitute Good?
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When two products are substitutes, the price of one and demand for other move in same direction.
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Complementary Good?
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When two products are complementary, the price of one and demand for other move INVERSELY.
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Unrelated Goods =?
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Independent Goods
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Change in Demand
Change in Quantity Demanded |
Shift in entire curve; caused by 5 determinants
Movement along curve; caused by movements in price level |
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Supply shows what in terms of producers?
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Their willingness and ability to make a product at each possible price level during a spicified period of time
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Law of Supply states?
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As price level rises, the quantity supplied rises.
As price level drops, the quantity supplied drops. |
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What is 'Price level' to a supplier?
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Price equals REVENUE, which means when price rises, so will revenue if increase supply.
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What are the 6 determinants of supply?
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Resource Prices
Technology Taxes and Subsidies Prices of Other Goods Price Expectations Number of Sellers |
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Rationing Function of Prices?
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Ability of competitive forces of supply and demand to always produce a point of equilibrium quanity and price
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Price Ceiling?
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Maximum legal price a seller may charge for a product or service
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Price Floor
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Minimum Price Fixed by government.
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Government-controlled Prices in form of ceilings and floors do what 3 things?
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1) Distort Resource Allocations
2) Stifle Rationing Function of Prices 3) Cause Negative Side Effects |