Chapters 4, 5, & 6
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| demand | combination of desire, ability, and willingness to buy a product | |
| law of demand | rule stating that more will be demanded at lower prices and less at higher prices; inverse relationship between price and quantity demanded | |
| demand curve/schedule | graph showing quantity demanded at each and every possible prices that might prevail in market at given time | |
| voluntary exchange | act of buyer and sellers freely and willingly engaging in market transactions; characteristic of capitalism and free enterprise | |
| income effect | that portion of a change in quantity demanded caused by a change in a consumer's real income when the price of a product changes | |
| substitution effect | that portion of a change in quantity demanded dye to a change in the relative price of the product. ex: pepsi & coke; foldgers & maxwell house. | |
| complements | products that increase the value of the other products; products related in such a way that an increase in the price of one reduces the demand for both. ex: camera - film & baseball bats & baseballs. | |
| utility | ability or capacity of a good or service to be useful and give satisfaction to someone | |
| marginal utility | satisfaction of usefulness obtained from acquiring one more unit of a product. | |
| supply | schedule of quantities offered for sale at all possible prices in a market | |
| law of supply | rule stating that more will be offered for sale at high prices that at lower prices | |
| supply curve/shcedule | graphical representation of quantities produced at each and every possible price in market | |
| equilibrium | price where quantity supplied equals quantity demanded; price that clears market | |
| surplus | situation where quantity supplied is greater than quantity demanded at a given price | |
| shortage | situation where quantity supplies is less than quantity demanded at give price | |
| price floors | lowest legal price that can be charged for product | |
| price ceiling | maximum legal price that can be charged for a product | |
| rationing | system of allocating goods and services without prices | |
| black market | market in which economic products are solid illegally | |
| law of diminishing utility | lessening of this satisfaction with each additional purchase | |
| consumer tastes | what will happen to the demand for bell bottoms in 1968 | |
| income | wa happens to demand of steak and lobstobers if ford motor announces that all salaries of employees will be cut in half at it's detroit plant? | |
| prices of substitues | what will happen to demand of tea if coffee prices rise to a new high | |
| price of complements | k-mart cameras 70% off. what will happen to demand for film? | |
| advertising | ipod came out with new commerical for new ipod nano | |
| population | hurricane katrina refugees move to Baton Rouge, LA from New Orleans. What happens to demand for t.v.'s in Baton Rouge? | |
| elasticity | how much consumers respond to a given price ex: pop coffee and butter | |
| inelastic | occurs when demand for some goods is less affected by price ex: gasoline, insulin | |
| cost of inputs | raw materials, wages, insurance (price of iron increase at a local steel mill -- curve steel up to left) | |
| technology | eli whitney invented cotton gin that allowed man to pick cotton at rate of 5 men. (supply curve of cotton in 1980's -- increase right down) | |
| government regulations | government mandates new safety regulations that cars must have new emissions controls and air bags (supply curve -- up to left decrease) | |
| number of firms/sellers | british petroleum opens 2 new oil refineries in Jpliet (supply curve -- increase right and down | |
| taxes and subsidies | taxes raised on cigarettes by $1 (supply curve -- decrease up to left) | |
| productivity | management increases workers pay for the second quarter by 30% in a computer factories (supply curve -- right and down increase) | |
| subsidy | government payment to an individual business, farmer, to encourage them to produce goods in a market | |
| laws of diminishing returns | the more workers hired the less product produced |
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