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Supply and Deman

economics social science concerned with how individuals, institutions, and society make optimal (best) choices under conditions of scarcity.
economic perspective economic way of thinking, has several critical and closely interrelated features.
opportunity cost To obtain more of one thing, society forgoes the opportunity of getting the next best thing.
utility the pleasure, happiness, or satisfaction obtained from consuming a good or service.
marginal analysis comparisons of marginal benefits and marginal costs, usually for decision making. To economists,“marginal” means “extra,” “additional,” or“a change in.” Most choices or decisions involve changes in the status quo, meaning the existing state of affairs
scientific method Observing realworld behavior&outcomes. Formulate a hypothesis.Testing the hypothesis bycomparing the outcomes of specific events to theoutcome predicted by hypothesis. Accepting,rejecting,&modifying the hypothesis.Testing the hypothesis against facts.
economic principle a statement about economic behavior or the economy that enables prediction of the probable effects of certain actions.
other-things-equal assumption the assumption that factors other than those being considered do not change. They assume that all variables except those under immediate consideration are held constant for a particular analysis.
microeconomics concerned w/decision making by individual customers,workers,households,&businessfirms.Measure the price of a specific product,#of workers employed by a firm,the revenue/income of a partic.firm/household,or spending of a specific firm,gov.entity,or family
macroeconomics examines either the economy as a whole or its basic subdivisions or aggregates, such as the government, household, and business sectors
aggregate a collection of specific economic units treated as if they were one unit. Therefore, we might lump together the millions of consumers in the U.S. economy and treat them as if they were one huge unit called “consumers.”
positive economics focuses on facts&cause-&-effect relatships.It includes description,theory development, &theory testing.Positive economics avoids value judgments.It tries to establish scitfc. statements about economic behavior&deals with what the economy is actually like.
normative economics Incorporates value judgments about what the economy should be like/what particular policy actions should be recommended to achieve a desirable goal.It looks at the desirability of certain aspects of the economy.
economizing problem the need to make choices because economic wants exceed economic means
budget line It is a schedule or curve that shows various combinations of two products a consumer can purchase with a specific money income. Although we assume two products, the analysis generalizes to the full range of products available to consumers.
economic resources all natural, human, and manufactured resources that go into the production of goods and services.
land includes all natural resources (“gifts of nature”) used in the production process. These include forests, mineral and oil deposits, water resources, wind power, sunlight, and arable land.
labor The physical actions&mental activities that people contribute to the production of goods /services.The work-related activities of a logger,retail clerk,machinist,teacher, profess. football player,&nuclear physicist all fall under “labor.”
capital includes all manufactured aids used in producing consumer goods and services. Included are all factory, storage, transportation, and distribution facilities, as well as tools and machinery
investment describe spending that pays for the production and accumulation of capital goods.
entrepreneurial ability The human resource that combines the other resources to produce a product, makes nonroutine decisions, innovates, and bears risks.
factors of production Because land, labor, capital, and entrepreneurial ability are combined to produce goods and services, they are called the factors of production, or simply “inputs.”
consumer goods products that satisfy our wants directly; industrial robots (for example, the kind used to weld automobile frames)
capital goods products that satisfy our wants indirectly by making possible more efficient production of consumer goods.
production possibilities curve A curve showing the different combinations of two goods or services that can be produced in a full-employment, full-production economy where the available supplies of resources and technology are fixed.
law of increasing opportunity costs As the production of a particular good increases, the opportunity cost of producing an additional unit rises.
economic growth (1 ) An outward shift in the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology; (2) an increase of real output (gross domestic product) or real output per capita
use demand and supply concepts to determine market equilibrium The equilibrium price&quaty.are est.at the inters.of the supply&demand curves.The interaction of market demand&market supply adjusts the price to the point at which the quanys.demanded&supplied are equal.It is equilibrium price & equilibrium quany.
demand a schedule/curve that shows the various amounts of a product that consumers are willing/able to purchase@each of a series of possible prices during a specified period of time.It shows the quant. of a product that willbe purchased@ various possible prices.
demand schedule A curve illustrating demand.
law of demand Other things equal, as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls. In short, there is a nega- tive or inverse relationship between price and quantity demanded.
diminishing marginal utility successive units of a particular product yield less and less marginal utility, consumers will buy additional units only if the price of those units is progressively reduced.
income effect a lower price increases the purchasing power of a buyer’s money income, enabling the buyer to purchase more of the product than before.
substitution effect at a lower price buyers have the incentive to substitute what is now a less expensive product for other products that are now relatively more expensive. The product whose price has fallen is now “a better deal” relative to the other products.
demand curve Inverse relationship between price&quantity demanded for a product can be represented on a graph.We measure quant.demanded on the horiz. axis&price on the vert.axis.Its downward slope reflects—people buy more of a product/service/ resource as price fall.
determinants of demand They are the “other things equal” in the relationship between price & quantity demanded. When any of these determinants changes,the demand curve will shift to the right or left. Determinants of demand are sometimes referred to as demand shifters.
normal goods demand for such products declines as their incomes fall. Products whose demand varies directly with money income are called superior goods
inferior goods rising incomes may cause the demand for charcoal grills to decline as wealthier con- sumers switch to gas grills. Goods whose demand varies inversely with money income
substitute good is one that can be used in place of another good.
complementary good one that is used together with another good
change in demand a shift of the demand curve to the right (increase demand)/to the left (decrease demand). It occurs bc the consumer’s state of mind in response to determinants of demand. “Demand” is a sched./curve so, a“change in demand”means a change in sched./curve.
change in quantity demanded A movement from one point to another point—from one price-quantity combination to another—on a fixed demand curve. The cause is an increase/ decrease in price of the product.Ex. a decline in the price from $5 to $4 will increase the quantity demanded.
supply is a schedule or curve showing the various amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices during a specific period.
supply schedule It shows the quantities of corn that will be supplied at various prices, other things equal.
law of supply Table that shows that a positive/direct relationship between price&quant.supplied.As price rises,the quant.supplied rises;as price falls,the quant.supplied falls.It tells that firms will produce&offer for sale product at a high price than at a low price
supply curve corrpd. w/the price–quantity supplied data in a table.The upward slope of the curve reflects the law of supply—producers offer more of a good/service/resource for sale as price rises. The relationship between price& quantity supplied is positive/direct
determinants of supply (1) resource prices, (2) technology, (3) taxes and subsidies, (4) prices of other goods, (5) producer expectations, and (6) the number of sellers in the market.
change in supply a change in the schedule and a shift of the curve. An increase in supply shifts the curve to the right; a decrease in supply shifts it to the left. The cause of a change in supply is a change in one or more of the determinants of supply.
change in quantity supplied a movement from one point to another on a fixed supply curve. The cause of such a movement is a change in the price of the specific product being considered.
equilibrium price the price where the intentions of buyers and sellers match. It is the price where quantity demanded equals quantity supplied.
equilibrium quantity the quantity at which the intentions of buyers and sellers match, so that the quantity demanded and the quantity supplied are equal.
surplus excess supply
shortage excess demand
productive efficiency the production of any particular good in the least costly way
allocative efficiency the particular mix of goods and services most highly valued by society (minimum-cost production assumed).
price ceiling sets the max. legal price a seller may charge for a product/service. A price at or below the ceiling is legal; a price above it is not. The rationale is that it enable consumers to obtain some “essential” good/service that they couldn't afford
price floor a min. price fixed by the government. A price at or above the price floor is legal; a price below it is not.
explain how changes in consumer spending, investment spending, government spending, or net exports affects aggregate demand (AG) Changes in the price level create real-balances,interest-rate,&foreign purchases effects that explain the downward slope of the AG curve.Changes in the determinants of aggregate demand alter the amounts of real GDP demanded at each price level.
explain why changes in input prices, productivity, or the legal environment affect aggregate supply By altering per-unit production costs independent of changes in the level of output, changes in one or more of the determinants of aggregate supply shift the aggregate supply curve.
aggregate demand–aggregate supply (AD-AS) model is a “variable price–variable output” model that allows both the price level and level of real GDP to change. It can also show longer time horizons, distinguishing between the immediate short run, the short run, and the long run.
aggregate demand a schedule or curve that shows the amount of a nation’s output (real GDP) that buyers collectively desire to purchase at each possible price level.
real-balances effect The tendency for increases in the price level to lower the real value (or purchasing power) of financial assets with fixed money value and, as a result, to reduce total spending and real output, and conversely for decreases in the price level.
interest-rate effect The tendency for increases in the price level to increase the demand for money,raise interest rates, and, as a result, reduce total spending and real output in the economy (and the reverse for price-level decreases).
foreign purchases effect The inverse relationship between the net exports of an economy and its price level relative to foreign price levels.
determinants of aggregate demand Factors such as consumption spending, investment, government spending, and net exports that, if they change, shift the aggregate demand curve.
aggregate supply A schedule or curve that shows the total quantity of goods and services demanded (purchased) at different price levels
immediate-short-run aggregate supply curve An aggregate supply curve for which real output, but not the price level, changes when the aggregate demand curves shifts; a horizontal aggregate supply curve that implies an inflexible price level.
short-run aggregate supply curve An aggregate supply curve relevant to a time period in which input prices (particularly nominal wages ) do not change in response to changes in the price level
long-run aggregate supply curve The aggregate supply curve associated with a time period in which input prices (especially nominal wages) are fully responsive to changes in the price level
determinants of aggregate supply Factors other than price that determine the quantities supplied of a good or service.
productivity A measure of average output or real output per unit of input. For example, the productivity of labor is determined by dividing real output by hours of work.
equilibrium price level The price level at which the aggregate demand curve intersects the aggregate supply curve.
menu costs The reluctance of firms to cut prices during recessions (that they think will be short-lived) because of the costs of altering and communicating their price reductions; named after the cost associated with printing new menus at restaurants.
efficiency wages A wage that minimizes wage costs per unit of output by encouraging greater effort or reducing turnover.
Created by: mmoreno12