Ap economics chapter 2 and 3
Determinants of demand
Factors other than price that determine the quantities demanded for a good or service
Determinants of supply
Factors other than the price that determines the quantities supplied of a good or service
Households
Economic entities (of one or more people occupying o housing unit) that provide resources to the economy and use the income received to purchase goods and services that satisfy economic wants
Self-interest
That which each firm, property owner, worker, and consumer believes is best or itself and seeks to obtain
Dollar votes
The "votes" that consumers and entrepreneurs cast for the production of consumer and capital goods, when they purchase those goods in product and resource markets
Shortage
The amount by which the quantity demanded of a product exceeds the quantity supplied at a particular (below-equilibrium) price
Surplus
The amount by which the quantity supplied of a product exceeds the quantity demanded at a specific (above-equilibrium) price
Demand
The amount of product that consumers are willing AND able to buy
Supply
The amounts of a good or service that sellers will offer at various prices during some period of time
Equilibrium price
The price in a competitive market at which the quantity demanded and the quantity supplied are equal, there in neither a shortage or a surplus, and there is no tendency for prices to rise or fall
Diminishing marginal utility
The principle that as a consumer increases the consumption of a good or service, the marginal utility obtained from each additional unit of a good or service decreases
Law of demand
The principle that, other things equal, an increase in a product's price will reduce the quantity of it demanded and conversely for a decrease in price
Law of supply
The principle that, other things equal, an increase in the price of a product will increase the quantity of it supplied, and the same for a decrease
Productive efficiency
The production of a good in the least costly way; occurs when production takes place at the output at which average total cost is a minimum and marginal product per dollar's worth of input is the same for all inputs
Private property
The right of private individuals and firms to obtain, own, control, employ, dispose of, and bequeath land, capital, and other property
Businesses
Economic entities (firms) that purchase resources and provide goods and services to the economy
Substitution effect
1.) A change in quantity demanded of a consumer good that results from a change in its relative expensiveness caused by a change in the products price 2.) The effect of a change in the price of a resource on the quantity of the resource employed by a firm, assuming no change in its output
Equilibrium quantity
1.) The quantity at which the intentions of buyers and sellers in a particular market match at a particular price such that the quantity demanded and the quantity supplied are equal. 2.) The profit-maximizing output of a firm
Income effect
A change in quantity demanded of a product that results from the change in real income (purchasing power) caused by a change in the products price
Change in quantity demanded
A change in the quantity demanded along a fixed schedule or curve as a result of a change in the products price
Change in quantity supplied
A change in the quantity supplied along a fixed supply curve or schedule as a result of a change in the products price
Inferior goods
A good or service whose consumption declines as income rises, price of product remains constant (college students shopping at a thrift-store)
Normal goods
A good or service whose consumption increases when income increases and decreases when income decreases, price of product remains constant
Demand curve
A graph with a curve showing the amount of goods and services buyers are willing AND able to purchase at various prices during some time period
Supply curve
A graph with a curve showing the amounts of a good or service that sellers will offer at various prices during some period of time
Corporation
A legal entity (Person) chartered by a state or the Federal government that is distinct and separate from the individuals who own it
Price floor
A legally determined minimum price above equilibrium price
Price celling
A legally established maximum price for a good or service
Resource market
A market in which households sell and firms buy resources or the services or resources
Product market
A market in which products are sold by firms and bought by households
Command system
A method of organizing an economy is which property resources are publicly owned and government uses central economic planning to direct and coordinate economic activities; communism
Economic system
A method of organizing an economy, of which the market system and the command system are the two general types
Change in supply
A movement of an entire supply curve or schedule such that the quantity supplied changes at every particular price; caused by a change in one or more of the determinants of supply
Change in demand
A movement on an entire demand curve or schedule such that the quantity demanded changes at every particular price; caused by a change of one or more determinants of demand
Supply schedule
A table showing the amounts of a good or service that sellers will offer at various prices during some period of time
Circular flow diagram
An illustration showing the flow of resources from households to firms and of products from firms to households. These flows are accompanied by reverse flows of money from firms to households and households to firms
Sole proprietorship
An unincorporated firm owned and operated by one person but they can have employees working for them
Partnership
An unincorporated firm owned and operated by two or more people
Market
Any institution or mechanism that brings together buyers and sellers of a particular good or service
Medium of exchange
Any item sellers generally accept and buyers generally use to pay for a good or service; a convenient way of exchanging goods or services without bartering; money
Money
Any item that is generally acceptable to sellers in exchange for goods and services
Market system
Characterized by the private ownership of resources and the use of markets and prices to coordinate and direct economic activity; goods and services are produced by whoever is willing and able to
Consumer sovereignty
Determination by consumers of the types and quantities of goods and services that will be produced with the scarce resources of the economy; consumers direction of production through their dollar votes
Complementary goods
Products and services that are used together. When one price falls, the demand for the other increases
Substitute goods
Products or services that can be used instead of other inputs in the production process; resources for which an increase in the price of one leads to an an increase in the demand of the other
Allocative efficiency
The apportionment of resources among firms and industries to obtain the production of the products most wanted by consumers; the output of each product at which its marginal cost and price or marginal benefit are equal, and at which the sum of consumer surplus and producer surplus is maximized
Barter
The exchange of one good or service for another good or service
Freedom of enterprise
The freedom of firms to obtain economic resources, to use those resources to produce product's of the firms own choosing, and to sell their products in markets of their choice
Freedom of choice
The freedom of owners of property resources to employ or dispose of them as they see fit, of workers to enter any line of work for which they are qualified, and of consumers to spend their incomes in a manner they think is appropriate
Creative destruction
The hypothesis that the creation of new products and production methods simultaneously destroys the market power of existing monopolies
Competition
The presence in a market of independent buyers and sellers competing with one another along with the freedom of buyers and sellers to enter and leave the market
Division of labor
The separation of the work required to produce a product into a number of different tasks that are preformed by different workers; specialization of workers
Demand schedule
The table that shows the amount of product that buyer(s) are willing AND able to buy at various prices during some time period
"Invisible Hand"
The tendency of firms and resource suppliers that seek to further their own self-interests in competitive markets to also promote the interest of society
Specialization
The use of the resources of an individual, a firm, a region, or a nation to concentrate production on one or a small number of goods and services