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Chapter 3
| Term | Definition |
|---|---|
| Demand | The amount of a good or service that a consumer is willing and able to buy at various possible prices during a given time period |
| Law of demand | The principle that, all other factors being equal, consumers will purchase(demand) more of a good at lower prices and less of a good at higher prices |
| Purchasing Power | The amount of income that people have available to spend on goods and services |
| Income Effect | The effect that a change in an item's price has on consumer's ability to purchase goods |
| Substitution Effect | Consumers' tendency to substitute a lower-priced good for a similar, higher-priced one |
| Diminishing Marginal Utility | The natural decreases in the utility of a good or service asd more units of it are consumed |
| Demand Schedule | A table that shows the level of demand for a particular item at various prices |
| law of supply | the principle that producers will supply more of a product or service at higher prices but less of a product or service at lower prices |
| profit motive | the desire to make money |
| cost of production | the total of materials, labor, and other inputs required in the manufacture of a product |
| supply curve | a graphic representation of a supply schedule showing the relationship between the price of an item and the quantity supplied during a given time period with all other things being equal |
| determinant of supply | a nonprice factor that influences the available supply of a good or a service |
| tax | a required payment to a local, state, or national government usually made on some regular basis |
| law of diminishing returns | the principle that as more of an input (such as labor) is added to a fixed supply of other resources (such as capital), productivity will increase up to a point, after which the marginal product will diminish |
| overhead | the sum of a business's fixed costs except for wages and the material costs |
| variable cost | a cost of doing business that changes directly with a change in the level of output, typically rising and dropping as production increases and decreases |
| marginal cost | the cost of producing one additional unit of output |
| Demand Curve | A graphic representation of a demand schedule, showing the relationship between the price of an item and the quantity demanded during a given period, with all other things being equal |
| Determinants of Demand | A nonprice factor that influences the amount of demand for a good or service |
| Substitute Goods | A product that purchasers use in place of another product, particulary if the price of the other product rises |
| Complementary Goods | A good that is commonly used in another good and for which demand increases(or decreases) when the demand for the related good increases(or decreases) |
| Elasticity of Demand | The degree to which changes in the price of a good or service affect quantity demanded |
| market failure | a flaw in a price system that occurs when some costs have not been accounted for and therefore are not properly distributed |
| externality | an effect that an economic activity has on people and businesses that are neither producers nor consumers of the good or service being produced. An externality may be either positive (beneficial) or negative (harmful). |
| public good | any good or service that is consumed by all members of a group, regardless of who has paid for it |
| market equilibrium | the point at which the quantity supplied and quantity demanded for a product are equal at the same price |
| surplus | a situation in which the quantity supplied of an item at a given price exceeds the quantity demanded |
| shortage | a situation in which the quantity demanded of a good or resource exceeds the quantity supplied |
| price ceiling | a government regulation that sets a maximum price for a particular good |
| price floor | a government regulation that sets a minimum price for a particular good |
| minimum wage | the lowest hourly wage rate that an employer can legally pay a worker, as established by federal law |
| rationing | a system by which a government or other institution decides how to distribute a good or service; rationing is usually the result of limited supply |
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econclass
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