Microeconomics Vocab
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| Market | A group of buyers and sellers of particular good or service.
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| Buyers | Determine the demand for the product
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| Sellers | Determine the supply of the product
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| Competitive market | A market in which there are so many buyers and so many sellers that each has a negligible impact on the market price.
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| For a market to be perfectly competitive, it must have two characteristics: | The goods offered for sale are exactly the same. The buyers and sellers are so numerous that no single buyer or seller has any influence over the market price.
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| Price takers | Buyers and sellers must accept the price the market determines.
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| Monopoly | Some markets have only one seller, and this seller sets the price.
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| Quantity demanded | The amount of the good that buyers are willing and able to purchase.
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| Law of demand | When the price of a good rise, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises.
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| Demand schedule | A table that shows the relationship between the price of a good and the quantity demanded.
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| Shift to the right | Increase in demand
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| Shift to the left | Decrease in demand
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| Normal good | If the demand for a good falls when income falls.
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| Inferior good | If the demand for a good rises when income falls.
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| Substitutes | When a fall in the price of one good reduces the demand for another good.
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| Complements | When a fall in the price of one good raises the demand for another good.
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| Influencers to buyer behavior | Taste, expectations, number of buyers
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| Quantity supplied | The amount that sellers are willing and able to sell
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| Law of supply | When the price of a good rises, the quantity supplied of the good also rises, and when the price falls, the quantity supplies falls as well.
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| Supply schedule | A table that shows the relationship between the price of a good and the quantity supplied.
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| Curve to the right | Increase in supply
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| Curve to the left | Decrease in supply
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| Influencers to supply | Input prices, technology, expectations, number of sellers
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| Equilibrium | Supply and demand curves intersect
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| Surplus/excess supply | Suppliers are unable to sell all they want at the going price
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| Shortage/excess demand | Demanders are unable to buy all they want at the going price
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| Steps to analyze changes in equilibrium | 1. Shift in supply curve
2. Whether the curve shifts right or left
3. Use a supply and demand diagram to compare the initial equilibrium with the new one
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| Price of elasticity of demand | Measures how much the quantity demanded responds to a change in price.
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| Demand for a good is said to be elastic if | the quantity demanded responds substantially to changes in the price.
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| Goods with close substitutes tend to have more elastic demand because | it is easier for consumer to switch from that good to others.
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| Demand for a good is said to be inelastic if | the quantity demanded responds only slightly to changes in the price
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| Necessities tend to have | inelastic demands
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| Luxuries tend to have | elastic demands
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| Narrowly defined markets tend to have | more elastic demand than broadly defined markets
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| Goods tend to have more elastic demand over | longer time horizons
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| formula for price elasticity of demand | percentage change in quantity demand / percentage change in price
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| Midpoint method formula | ((Q2-Q1)/[(Q2+Q1)/2]) / (P2-P1)/[(P2+P1)/2]
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| Demand is considered elastic when the elasticity is | greater than 1 (quantity moves more than price)
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| Demand is considered inelastic when the elasticity is | less than one (quantity moves less than the price)
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| perfectly inelastic (zero inelasticity) means | the demand curve is vertical
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| when elasticity rises, the demand curve | gets flatter and flatter
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| perfect elasticity means | price elasticity of demand approaches infinity and the demand curve becomes horizontal
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| An inelastic curve looks like | the letter I
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| Formula for total revenue | P (price of good) * Q (quantity of good sold)
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| The height under a demand curve represents | p
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| The width under a demand curve respresents | q
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| The area of the box under a demand curve represents | total revenue
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| When demand is elastic (a price elasticity greater than 1) | price and total revenue move in opposite direction
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| When demand is unit elastic (a price elasticity exactly equal to 1) | total revenue remains constant when the price changes
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| Slope in a revenue curve represents | ratio of change over price (rise) / change in quality (run)
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| Elasticity in a revenue curve represents | ratio of percentage change of the two slop variables
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| Low price, high quantity | demand curve is inelastic
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| high price, low quality | demand curve is elastic
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| linear demand curve | illustrates that the price elasticity of demand need not be the same at all points on a demand curve
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| The income elasticity of demand | measures how the quantity demanded changes as consumer income changes.
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| Income elasticity of demand formula | percentage change in quantity demanded / percentage change in income
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| The cross price elasticity of demand | measure how the quantity demanded of one good responds to a change in the price of another good
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| cross-price elasticity of demand formula | percentage change in quantity demand good 1 / percentage change in price of good 2
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| price elasticity of supply | how much the quantity supplied responds to changes in price
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| price elasticity depends on | the flexibility of sellers to change the amount of the good they produce
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| formula for price elasticity of supply | percentage change in quantity supplied / percentage change in price
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| zero elasticity (perfectly inelastic) means | the supply curve is vertical
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| perfect elasticity means | the supply curve is horizontal
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