Economics Chapter 3, 4, 5

product markets

The markets in which goods and services are exchanged.

income elasticity of demand

The percentage change in quantity demanded at a specific price divided by the percentage change in income that produced the demand change. A measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income

equilibrium price

The price in a competitive market at which the quantity demanded and the quantity supplied are equal, there is neither a shortage nor a surplus, and there is no tendency for price to rise or fall.

equilibrium quantity

The quantity supplied and the quantity demanded at the equilibrium price.

price elasticity of supply

The ratio of the percentage change in quantity supplied of a good or service to the percentage change in its price. A measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price

cross price elasticity of demand

The responsiveness of demand for a good to a change in the price of another good. the percentage change in quantity demanded of one good divided by the percentage change in the price of another good.

complements

Two goods that are bought and used together

change in quantity demanded

a MOVEMENT along the demand curve that occurs in response to a change in PRICE

change in quantity supplied

a change in the amount of a product that producers offer for sale because of a change in the product's price

change in demand

a change in the quantity demanded of a good or service at every price; a shift of the demand curve to the left or right.

inferior good

a good that consumers demand less of when their incomes increase

normal good

a good that consumers demand more of when their incomes increase

supply curve

a graph of the relationship between the price of a good and the quantity supplied

demand curve

a graphic representation of a demand schedule, a graph of the relationship between the price of a good and the quantity demanded

elasticity

a measure of responsiveness that tells us how a dependent variable such as quantity responds to a change in an independent variable such as price

shortage

a situation in which quantity demanded is greater than quantity supplied

surplus

a situation in which quantity supplied is greater than quantity demanded

Law of demand

economic law that states that consumers buy more of a good when its price decreases and less when its price increases

price floor

floor below which prices are not allowed to fall

supply shifter

is a variable that can change the quantity of a good or service supplied at each price.

Demand schedule

table showing quantities of a good or service demanded at different possible prices during a particular period, Ceteris Paribus.

supply schedule

table showing quantities supplied at different prices during a particular period.

Quantity demanded

the amount of a good or service that a consumer is willing and able to purchase at a given price, Ceteris Paribus.

quantity supplied

the amount of a good that sellers are willing and able to sell at a particular price during a particular period, all other things unchanged.

total revenue

the number of units sold multiplied by the average price per unit

price elasticity of demand

the percentage change in quantity demanded divided by the percentage change in price

substitutes

two goods for which an increase in the price of one leads to an increase in the demand for the other

change in supply

A change in the quantity supplied of a good or service at every price; a shift of the supply curve to the left or right.

price ceiling

A legally determined maximum price that sellers may charge

circular flow model

A model that shows the flow of goods and services and the interaction among households, businesses, and banks

price elastic

IF the absolute value of the price elasticity of demand is greater than 1, demand is termed as THIS. Quantity demanded is highly responsive to price changes. Percentage change in quantity dominates. An increase in price will reduce total expenditure; a decrease in price will increase total expenditure.

unit price elastic

If the absolute value of the price elasticity of demand is equal to 1, demand is THIS.

price inelastic

If the absolute value of the price elasticity of demand is less than 1, demand is THIS.

demand shifter

Is a variable that can change the quantity of a good or service demanded at each price.

factor markets

Markets for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability.