unit 4 economics supply and demand. income effect any increase or decrease in consumers’...
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Unit 4 EconomicsSupply and Demand
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income effect
• Any increase or decrease in consumers’ purchasing power caused by a change in price
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opportunity cost
What you give up in time and resources when you chose to do one thing over another.
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law of demand
• The inverse relationship in which consumers will buy more of a product at a lower price and less of a product at a higher price.
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demand schedule
• A list which shows the relationship between the price of a good or service and the quantity that consumers demand.
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demand curve
• A graph reflecting the relationship between the price of a good or service and the quantity that consumers demand
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scarcity
• fundamental condition of economics that results from the combination of unlimited wants and limited resources.
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elastic demand
• Exists when a small change in a good’s price has a large impact on the quantity demanded
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inelastic demand
• When a change in price has little impact on quantity demanded
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human capital
• Investing in education, training, health and values
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Law of supply
• The idea that producers will supply more product at higher prices and less product at lower prices.
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supply
• All of the product a company makes at various prices in a given period of time
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market equilibrium
• The price at which both producers and consumers are satisfied.
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The term that refers to the tendency of consumers to buy products of similar quality at a lower price?
substitution effect
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The concept which states that as more units of a product are consumed, the satisfaction from consuming each additional unit decrease is called?
Diminishing marginal utility
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A demand curve only displays a “snapshot” of a market because…
It represents a specific time period.
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The two conditions which make up demand
• Willing and able to purchase
• Specific time period
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Three things that can affect the demand for a product are:
1. Income effect
2. Substitution effect
3. Diminishing marginal utility
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What are the three qualities of elastic demand?
1. whether or not it has available substitutes.
2. whether or not it is a necessity.
3. the portion of the consumers’ income the product’s cost represents.
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Two things that can affect the supply for a product are:
1. Profit motive
2. Market trends
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What are the qualities of elastic supply?
• Time• Money• Availability of resources
Examples:
Elastic: sports memorabilia, paper clips, toys,
Inelastic: gold, oil, nuclear weapons
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Why do Governments set prices?
• Minimize supply and demand swings• To balance inequalities in the market
place.• To address unaccounted for costs
like pollution.
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price ceiling
• Rent control is an example
• Can cause shortages
• A maximum price for a product
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price floor
• Minimum wage is an example
• It can cause a surplus
• It is a minimum price for a product.