Economics Unit 2

Law of Supply

As the supply goes up, so does the price

TIRES

Tastes and preferences of consumers Income of consumers Related goods (subs and compliments) Expectations of future price changes Size of population/market

TIGERS

Technology International events/disasters Government regulation Expectation of future price changes Resource costs Sellers in the market

Substitute Good

a good that can be easily used in place of another

Complimentary Good

a good that is used with another

Diminishing marginal returns

a level of production in which the output decreases as more units are added

Law of Demand

as the price goes up, the quantity demanded goes down

Microeconomics

behavior and decision making by small units of the economy such as individuals and firms

Inelastic

buyers are not responsive to price changes (need)

Elastic

buyers are responsive to price changes (want)

Shift

caused by TIRES or TIGERS

Movement along curve

caused by price changes

Price Ceiling

creates a shortage. Maximum price set by the government

Price Floor

creates a surplus. Minimum price set by the government

Oligopoly

few firms, similar products, hard barriers, low competition

Monopolistic Competition

many firms, differentiated products, moderate competition, few barriers

Subsidy

money that the government supplies to a firm to produce more of a certain product

Perfect Competition

multiple firms, same product, high competition, easy barriers

Monopoly

one firm, unique products, very difficult barriers, little to no competition

Equilibrium

the point of balance between price and quantity

Shortage

when demand is greater than supply

Surplus

when supply is greater than demand