Demand Curve
A graphical representation of the demand schedule, another way of showing the relationship between quantity demanded and price
Law of Demand
The proposition that a higher price for a good all other things being equal, leads people to demand a smaller quantity of that good
Change in Demand
Shows the increase in quantity demanded at any given price
Increase in demand
A rightward shift of the demand curve
Decrease in Demand
A leftward shift of the demand curve
Complements
When the fall in the price of one good makes consumers willing to buy another good
Normal Goods
The demand for them rises as the income rises
Inferior Goods
The demand falls for them as income rises
Individual Demand Curve
Shows the relationship between quantity demand and the price for the individual consumer
Market Demand Curve
Shows how the combined quantity demanded by all consumers depends on the market price for that good
Quantity Supplied
The quantities that the producers are willing to produce and sell
Law of Supply
Higher price leads to a higher quantity supplied
Change in Supply
A change in the supply schedule leads to a shift in the supply curve
Equilibrium
When no individual would be better off doing something different
Equilibrium Price
The price that matches the quantity supplied and the quantity demanded
Equilibrium Quantity
The quantity bought or sold at the equilibrium price
Surplus
When the quantity of a good exceeds the quantity demanded
Shortage
When the quantity demanded exceeds the quantity supplied
Price Controls
When a government intervenes to regulate prices
Price Ceiling
An upper limit
Price Floor
Lower limit
Wasted Resources
People expand money, effort, and time to cope with shortages caused by the price ceiling
Black Market
A market where goods are bought and sold illegally- because they are contraband or the price is prevented by a price ceiling
Minimum Wage
An example of a price floor on the wage rate
Persistent Surplus
Price floors lead to a _________
economics
the study of how society manages its scarce resources
factors of production
the ingredients of economic activity: land, labor, capital, and enterprise
inputs
labor, machinery, buildings, and other resources used to produce output
capital
money or assets put to economic use
land
one of the factors of production; owners of it earn money by charging rent
labor
one of the factors of production; among the things that determine its supply is the number of able people in the population.
entrepreneurship
the process of starting, organizing, managing, and assuming the responsibility for a business
consumer goods
goods (as food or clothing) intended for direct use or consumption
capital goods
buildings, machinery, tools, and other goods that provide productive services over a period of time.
Okun's Law
1 percent more unemployment results in 2 percent less output
efficiency
the property of society getting the most it can from its scarce resources
microeconomics
the study of how households and firms make decisions and how they interact in markets
macroeconomics
the study of economy-wide phenomena, including inflation, unemployment, and economic growth
positive economics
the analysis of facts or data to establish scientific generalizations about economic behavior
normative economics
the part of economics involving value judgments about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics
ceteris paribus
a Latin phrase, translated as "other things being equal," used as a reminder that all variables other than the ones being studied are assumed to be constant
fallacy of composition
The incorrect belief that what is true for the individual, or part, must necessarily be true for the group, or whole.
scarcity
a small and inadequate amount
opportunity cost
whatever must be given up to obtain some item
model
a simplified description of a complex entity or process
production possibilities
The alternative combinations of final goods and services that could be produced in a given time period with all available resources and technology
constant costs
A straight-line Production Possibilities curve
law of increasing opportunity cost
to produce more of one good, a successively larger amount of the other good must be sacrificed
demand
the ability and desire to purchase goods and services
law of demand
the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises
quantity demanded
the amount of a good that buyers are willing and able to purchase
market demand
the demand by all the consumers of a given good or service
substitutes
two goods for which an increase in the price of one leads to an increase in the demand for the other
complements
two goods for which an increase in the price of one leads to a decrease in the demand for the other
normal good
a good for which, other things equal, an increase in income leads to an increase in demand
inferior good
a good for which, other things equal, an increase in income leads to a decrease in demand
supply
offering goods and services for sale
law of supply
the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises.
quantity supplied
the amount of a good that sellers are willing and able to sell
market equilibrium
a situation in which quantity demanded equals quantity supplied
equilibrium quantity
the quantity supplied and the quantity demanded when the price has adjusted to balance supply and demand
business cycle
recurring fluctuations in economic activity consisting of recession and recovery and growth and decline
recession
a period of declining real incomes and rising unemployment
trough
low point in a business cycle
recovery
the phase in which unemployment begins to decrease, demand for goods and services increases, and GDP begins to rise again
unemployment
the inability of labor-force participants to find jobs
inflation
an increase in the overall level of prices in the economy
economic growth
an increase in the total output of an economy
recessionary gap
The amount by which the aggregate expenditures schedule must shift upward to increase the real GDP to its full-employment, noninflationary level
inflationary gap
The amount by which equilibrium GDP exceeds full-employment GDP.
elasticity
a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants
inelastic and elastic goods
demand will change due to rise or fall in prices vs. constant demand regardless of a change in price
changes in supply/demand
A new equilibrium point. Supply rises or lowers, demand rises or lowers. Rises goes right, lowers goes left.
changes in quantity supplied/demanded
The degree to which the quantity demanded in correspondence with supply changes with respect to price.
trade
provide goods and services to others and receive goods and services in return
gains from trade
people can get more of what they want through trade than they could if the tried to be self-sufficient.
specialization
each person specializes in the task that he or she is good at performing
comparative advantage
in producing a good or service if the opportunity cost of producing the good or service is lower for that individual than for other people
absolute advantage
if an entity can produce more of a good than another entity within a give amount of time and resources.
economics
the study of scarcity
individual choice
decisions by individuals about what to do, which necessarily involve decisions about what not to do.
economy
a system for coordinating a society's productive and consumptive activities.
market economy
the decisions of individual producers and consumers largely determine what, how and for whom to produce, with little government involvement
command economy
industry is publicly owned and a central authority makes production and consumption decisions.
incentives
rewards of punishments that motivate particular choices
property rights
establish ownership and grant individuals the right to trade goods and services with each other
marginal analysis
the study of the costs and benefits of doing a little bit more of an activity versus a little bit less
resource
anything that can be used to produce something else
scarce
resource is not available in sufficient quantities to satisfy all the various ways a society wants to use it.
economic aggregates
economic measures that summarize data across many different markets
positive economics
the branch of economic analysis that describes the way the economy actually works
normative economics
makes prescriptions about the way the economy should work