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