mirco2

Price rationing

The process by which the market system allocates goods and services to consumes when quantity demand exceeds quantity supplies.

price floor

a minimum price below which exchange is not permitted

Firm

an organization that comes into being when a person or a group of people decides to produce a good or service to meet a perceived demand. a firm transforms resources inputs into products (outputs). Firms are the primary producing units in a market economy.

Substitutes

goods that can serve as replacement for one another; When the price of one increases, demand for the other one increases.

Surplus

or excess supply; the condition that exist when quantity supplied exceeds quantity demanded at the current price

Law of demand

the negative relationship between price and quantity demand: as price rise, quantity demanded decreases; as price falls, quantity demanded increases

Deadweight loss

the net loss of producer and consumer surplus form underproduction or overproduction.

Law of supply

the positive relationship between price and quantity of a good supplied: an increase in market price will lead to and increase in quantity supplied, and decrease in market price will lead to a decrease in quantity supplied.

Shortage

Excess demand: the condition that exists when quantity demanded exceeds quantity supplied at the current price

Price ceiling

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Equilibrium

the condition that exists when quantity supplied and quantity demand are equal. To equilibrium, there is no tendency for price to change.

Households

the consuming units in an economy

Profits

the difference between revenues and costs

Producer surplus

the difference between the current market price and the full cost of production of the firm.

Customer surplus

the difference between the maximum amounts a person is willing to pay for good and its current market price