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complementary goods
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goods that are consumed together
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consumer(s)
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people who buy goods and services
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consumer surplus
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difference between equilibrium price in the market and the price consumers are actually willing to pay
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cross-price elasticity
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percentage in change in the quantity demanded for one good divided by the percentage of change in the price of a related good. determines if goods are complements (negative) or substitutes (positive)
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deadweight loss
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loss of consumer and producer surplus that occurs when a quantity other than equilibrium prevails in the market
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demand
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willingness and ability of consumers to buy goods and services within the market at a specific time
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demand curve
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downward sloping curve showing consumers' demand at different prices
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determinants of demand
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factors that increase or decrease demand: market size, expected prices, related prices, income and tastes
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determinants of supply
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factors that increase or decrease supply: technology, related prices, input prices, competition, government taxes and subsidies, and expected prices
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diminishing marginal utility
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each additional unit of a good or service that is consumed gives less additional satisfaction or utility than the previous one, 1 reason why supply and demand have inverse relationships
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effective price ceiling
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legal maximum price set below equilibrium resulting in shortage in the market at ceiling price
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effective price floor
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legal minimum price set above equilibrium resulting in a surplus in the market
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elasticity
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sensitivity of quantity changes relative to changes in price
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elastic
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rate of change in quantity is greater in percent that the rate of change in price
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equilibrium
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when a single price ad quantity result from the intersection of supple and demand, no shrotae or surplus
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excise tax
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per-unit tax on the production of a good or service, tend to reduce supply, decreasing quantity and increasing the price consumers pay
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income effect
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consumer's buying power changes inversely to changes in price, another reason for inverse relationship of S&D
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income elasticity of demand
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percentage change in the quantity demanded divided by the percentage change in consumers' income. determines whether goods are normal (positive) or inferior (negative)
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inelastic
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describes a rate of change in quantity that is less (in %) than the rate of change in price
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inferior good
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a good whose demand varies inversely with consumers' incomes
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law of demand
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price and quantity demanded of a good are inversely related because of income effect, substitution effect, and diminishing marginal benefits
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law of increasing marginal cost
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cost of producing each additional unit of a good or service incurs a greater cost than the previous unit. results from the need to use resources that are less and less well-suited to production of that good as quantity produced increases
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law of supply
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the price and quantity supplied of a good are directly related. Higher prices induce increased production quantities
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normal good
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a good whose demand varies directly with consumers' incomes
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price ceiling
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max price for a good or service that cannot be legally exceeded
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price elasticity of demand
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the responsiveness of quantity changes relative to price changes; the percentage change of quantity demanded divided by the percentage change in price
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price elasticity of supply
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percentage change in quantity supplied divided by the percentage change in the price of a good or service
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price floor
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minimum price for a good or service that cannot be legally undermined
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producer(s)
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people who make and sell goods and services: suppliers
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producer surplus
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the difference between the market equilibrium price and the price producers would willingly accept for a good or service, represented by the area below price received, above supply curve, and left of quantity sold.
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quantity demanded
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amount of a good or service that consumers are willing and able to buy at a given price in a specified period of time
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quantity of supply
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amount of a good or service that producers are willing and able to sell at a given price in a specified period of time
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shortage
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demand higher than supply, price less than equilibrium
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substitute goods
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goods which are used in place of each other
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substitution effect
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tendency of consumers to substitute lower-priced items for higher-priced items, why law of demand us true
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supply
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willingness and ability of providers to offer a good or service for sale at various prices within a market at a certain time frames
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supply curve
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upward sloping curve that illustrate producers' willingness and ability to bring units of goos and services to time period market at a particular
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surplus
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quantity supplied is higher than quantity demanded; prices higher than equilibrium
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total revenue
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price of a good or service times the quantity sold
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total revenue test
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test for price elasticity of demand. if price changes vary directly with total revenue, then demand is inelastic. If price changes varies inversely with total revenue, then the demand is elastic. If price changes do not change with total revenue, then demand is unit elastic.
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unit elastic
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percent change in quantity is equal to percent change in price
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utility
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want-satisfying power that goods and services provide
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