1. Demand: willingness to buy a good or service and the ability to pay for it; how much of an item an individual is willing to purchase at each price
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2 1. Demand: willingness to buy a good or service and the ability to pay for it; how much of an item an individual is willing to purchase at each price
3 2. Quantity demanded vs demand: quantity demanded is a point on the demand curve; demand is the curve (or a new curve due to a shift)
4 3. Law of demand: prices go down, quantity demanded increases; prices go up, quantity demanded decreases (inverse relationship)
5 4. Normal goods: when consumer incomes increases, they demand more normal goods (new car, TV, etc.)
6 5. Inferior goods: when consumer income increases, they demand less inferior goods (used goods)
7 6. Name the demand shift factors: Consumer income Market size/population Consumer tastes/preferences Consumer expectations (of price) Substitute goods Complementary goods
8 7. The one thing that never shifts demand is: price
9 8. When the price of a good increases, the demand for its substitute increases.
10 9. When the price of peanut butter goes up, the demand for its complement jelly decreases. (When the price of peanut butter decreases, the demand for its complement jelly increases.)
11 10. Law of diminishing marginal utility: the marginal benefit of using each additional unit of a product during a given period of time will decline (the law of less additional satisfaction)
12 11. Supply: the willingness and ability of producers to offer goods and services for sale; schedule of quantities a seller is willing to sell at various prices
13 12. Quantity supplied vs. supply: quantity supplied a point on the supply curve; supply is the curve (or a new curve due to a shift)
14 13. Law of supply: When prices decrease, quantity supplied decreases and when prices increase, quantity supplied increases (direct relationship)
15 14. Name the supply shift factors: Input costs Labor productivity Technology Government action (tax or subsidy) Producer expectations (of price) Number of producers
16 15. The one thing that never shifts supply is: price
17 16. Taxes always decrease supply. Subsides always increase supply.
18 17. Excise tax: a tax on a specific good (gas; cigarettes)
19 18. A government action can be in the form of: tax or subsidy
20 19. Equilibrium: where supply and demand meet; all goods supplied are demanded (consumed)
21 20. What are the characteristics of the price system? It is neutral; it is flexible and regulates itself toward equilibrium; it is driven by the market
22 21. Competitive pricing: occurs when producers sell goods and services at lower prices to lure customers away from rival producers while still making a profit
23 22. One reason suppliers lower the price of a good is: sell more units due to a surplus of a good
24 23. What signal do higher prices send to consumers? Not to buy the good or that the good is of a higher status (name brand)
25 24. What signal do higher prices send to producers? It is time to enter the market (motivated by profit)
26 25. Price ceiling: legal maximum price that sellers may charge for a good/service; a price below the equilibrium price and results in a shortage
27 26. Price floor: Legal minimum price that buyers must pay for a good/service (above equilibrium) An example: minimum wage
28 27. Elasticity: shows how sensitive a change in quantity is to a change in price Elasticity of demand: shows how responsive consumers are to a change in price Elasticity of supply: shows how responsive producers are to a change in price
29 28. Elastic: responsive to a change in price; when a change in price leads to a relatively larger change in the quantity demanded (or supplied)
30 29. Inelastic: insensitive to a change in price; when a change in price leads to a relatively smaller change in the quantity demanded (or supplied)
31 30. What does the total revenue test indicate with regard to elasticity? Elastic: P goes up and TR goes down Elastic: P goes down and TR goes up Inelastic: P goes down and TR goes down Inelastic: P goes up and TR goes up
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