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Economics Unit 2

Chapter 7-8

demand the amount of a good or service that consumers are able and willing to buy at various possible prices during a specified time period
supply the amount of a good or service that producers are able and willing to sell at various prices during a specified time period
market the process of freely exchanging goods and services between buyers and sellers
voluntary exchange a transaction in which a buyer and a seller exercise their economic freedom by working out their own terms of exchange
law of demand economic rule stating that the quantity demanded and price move in opposite directions
quantity demanded the amount of a good or service that a consumer is willing and able to purchase at a specific price
real income effect economic rule stating that individuals cannot keep buying the same quantity of a product if its price rises while their income stays the same
substitution effect economic rule stating that if two items satisfy the same need and the price of one rises, people will buy more of the other
utility the ability of any good or service to satisfy consumer wants
marginal utility an additional amount of satisfaction
law of diminishing marginal utility rule stating that the additional satisfaction a consumer gets from purchasing one more unit of a product will lessen with each additional unit purchased
demand schedule table showing quantities demanded at different possible prices
demand curve downward-sloping line that shows in graph form the quantities demanded at each possible price
elasticity economic concept dealing with consumers’ responsiveness to an increase or decrease in the price of a product
price elasticity of demand economic concept that deals with how much demand varies according to changes in price
elastic demand situation in which a given rise or fall in a product’s price greatly affects the amount that people are willing to buy
inelastic demand situation in which a product’s price change has little impact on the quantity demanded by consumers
law of supply economic rule stating that price and quantity supplied move in the same direction
quantity supplied the amount of a good or service that a producer is willing and able to supply at a specific price
supply schedule table showing quantities supplied at different possible prices
supply curve upward-sloping line that shows in graph form the quantities supplied at each possible price
technology the use of science to develop new products and new methods for producing and distributing goods and services
law of diminishing returns economic rule that says as more units of a factor of production are added to other factors of production, after some point total output continues to increase but at a diminishing rate
equilibrium price the price at which the amount producers are willing to supply is equal to the amount consumers are willing to buy
shortage situation in which the quantity demanded is greater than the quantity supplied at the current price
surplus situation in which quantity supplied is greater than quantity demanded at the current price
price ceiling a legal maximum price that may be charged for a particular good or service
rationing the distribution of goods and services based on something other than price
black market “underground” or illegal market in which goods are traded at prices above their legal maximum prices or in which illegal goods are sold
price floor a legal minimum price below which a good or service may not be sold
entrepreneur person who organizes, manages, and assumes the risks of a business in order to gain profits
startup a beginning business enterprise
small-business incubator private- or government-funded agency that assists new businesses by providing advice or low-rent buildings and supplies
inventory extra supply of the items used in a business, such as raw materials or goods for sale
receipts income received from the sale of goods and/or services; also, slips of paper documenting a purchase
sole proprietorship business owned and operated by one person
proprietor owner of a business
unlimited liability requirement that an owner is personally and fully responsible for all losses and debts of a business
assets all items to which a business or household holds legal claim
partnership business that two or more individuals own and operate
limited partnership special form of partnership in which one or more partners have limited liability but no voice in management
limited liability company type of business enterprise that protects members against losing all of their personal wealth; members are taxed as if they were in a partnership
joint venture partnership set up for a specific purpose for a short period of time
corporation type of business organization owned by many people but treated by law as though it were a person; it can own property, pay taxes, make contracts, and so on
stock share of ownership in a corporation that entitles the buyer to a certain part of the future profits and assets of the corporation
limited liability requirement in which an owner’s responsibility for a company’s debts is limited to the size of the owner’s investment in the firm
articles of incorporation document listing basic information about a corporation that is filed with the state where the corporation will be headquartered
corporate charter license to operate granted to a corporation by the state where it is established
common stock shares of ownership in a corporation that give stockholders voting rights and a portion of future profits (after holders of preferred stock are paid)
dividend portion of a corporation’s profits paid to its stockholders
preferred stock shares of ownership in a corporation that give stockholders a portion of future profits (before any profits go to holders of common stock), but no voting rights
bylaws a set of rules describing how stock will be sold and dividends paid
franchise contract in which one business (the franchisor) sells to another business (the franchisee) the right to use the franchisor’s name and sell its products
Created by: perryherbst
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