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48 Cards in this Set
- Front
- Back
competitive market |
a market in which there are many buyers and sellers of the same good or service, none of whom can influence the price at which the good or service is sold |
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supply and demand model |
a model of how a competitive market works |
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demand schedule |
shows how much of a good or service consumers will want to buy at different prices |
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quantity demanded |
the actual amount of a good or service consumers are willing to buy at some specific price |
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demand curve |
a graphical representation of the demand schedule; it shows the relationship between quantity demanded and price |
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law of demand |
says that a higher price for a good or service, all other things being equal, leads people to demand a smaller quantity of that good or service |
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change in demand |
a shift of the demand curve, which changes the quantity demanded at any given price |
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movement along the demand curve |
a change in the quantity demanded of a good that is the result of a change in that good's price |
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substitute |
a rise in the price of one of the goods leads to an increase in the demand for the other good |
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complement |
a rise in the price of one good leads to a decrease in the demand for the other good |
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* changes in the prices of related goods/services * changes in income * changes in tastes * changes in expectations * changes in the number of consumers |
five principal factors that shift the demand for a good or service |
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normal good |
demand for these goods increases when consumer income rises |
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inferior good |
demand for these goods decreases when consumer income rises |
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individual demand curve |
illustrates the relationship between quantity demanded and price for an individual consumer |
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market demand curve |
how the combined quantity demanded by all consumers depends on the market price of that good; the horizontal sum of the individual demand curves of all consumers in that market |
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quantity supplied |
the actual amount of a good or service people are willing to sell at some specific price |
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supply schedule |
shows how much of a good or service would be supplied at different prices |
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supply curve |
shows the relationship between quantity supplied and price |
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law of supply |
the general proposition that, all else constant, a higher price leads to higher quantity supplied, and a lower price leads to lower quantity supplied |
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change in supply |
a shift of the supply curve, which changes the quantity supplied at any given price |
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movement along the supply curve |
a change in the quantity supplied of a good arising from a change in the good's price
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* changes in input prices * changes in the prices of related goods or services * changes in technology * changes in expectations * changes in the number of producers |
five principal factors that shift the supply curve for a good or service |
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input |
any good or service that is used to produce another good or service |
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technology
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all the methods people can use to turn inputs into useful goods and services |
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individual supply curve |
illustrates the relationship between quantity supplied and price for an individual producer |
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market supply curve |
shows how the combined total quantity supplied by all individual producers in the market depends on the market price of that good; the horizontal sum of the individual supply curves of all producers |
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equilibrium |
when no individual would be better off doing something different in an economic situation; where the supply curve and the demand curve intersect |
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equilibrium price |
the price at which the quantity of a good or service demanded equals the quantity of that good or service supplied (aka market-clearing price) |
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equilibrium quantity |
the quantity of a good or service bought and sold at the equilibrium (market-clearing) price |
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surplus
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excess supply: when the quantity supplied exceeds the quantity demanded; occurs when the price is above its equilibrium level
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shortage |
excess demand: when the quantity demanded exceeds the quantity supplied; occurs when the price is below its equilibrium level |
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price controls |
legal restrictions on how high or low a market price may go |
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price ceiling |
a maximum price sellers are allowed to charge for a good or service |
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price floor |
a minimum price buyers are required to pay for a good or service |
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quantity control / quota |
an upper limit on the quantity of some good that can be bought or sold |
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license |
gives its owner the right to supply a good or service; issuance is a form of quantity control |
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inefficient allocation to consumers |
people who want the good badly and are willing to pay a high price don't get it, and those who care relatively little about the good and are only willing to pay a relatively low price do get it
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wasted resources |
people expend money, effort, and time to cope with the shortages cause by a price ceiling |
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inefficiently low quality |
sellers offer low quality goods at a low price even though buyers would prefer a higher quality at a higher price |
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black market |
a market in which goods or services are bought and sold illegally, either because it is illegal to sell them at all or because the prices charges are legally prohibited by a price ceiling |
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minimum wage |
a legal floor on the wage rate, which is the market rate for labor |
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inefficient allocation of sales among sellers |
those who would be willing to sell the good at the lowest price are not always those who manage to sell it |
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inefficiently high quality |
sellers offer high-quality goods at a high price, even though buyers would prefer a lower quality at a lower price |
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demand price |
the price of a given quantity at which consumers will demand that quantity |
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supply price |
the price of a given quantity at which price producers will supply that quantity |
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wedge |
the difference between the demand price of the quantity transacted and the supply price of the quantity transacted for a good when the supply of the good is legally restricted |
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quota rent |
the earnings that accrue to the license-holder from ownership of the right to sell a good |
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deadweight loss |
the lost gains associated with transactions that do not occur due to market intervention |