Law of Demand
Consumers buy more of a good when its price is lower and less when its price is higher. This is known as this law.
What is the Law of Demand?
Goods that people buy more of when their income rises (example: pizza or name-brand snacks).
What are normal goods?
Producers offer more of a good as its price increases and less as its price falls. This is called this law.
What is the Law of Supply?
A change in technology, number of suppliers, or input costs will cause the supply curve to do this.
What is shift?
Goods that are bought and used together (example: skis and ski boots).
What are complements?
When the price of pizza rises, people buy more tacos instead. This is an example of this effect.
What is the substitution effect?
Goods that people buy less of when their income rises (example: generic cereal).
What are inferior goods?
The extra output from hiring one additional worker.
What is the marginal product of labor?
A government payment to producers that lowers costs and increases supply.
What is a subsidy?
Goods that can replace each other.
What are substitutes?
When a price increase causes people to feel poorer and buy less overall, this effect is at work.
What is the income effect?
Skis and ski boots are examples of these related goods.
What are complements? (or complementary goods)
Costs that do not change no matter how much is produced (example: rent or salaries).
What are fixed costs?
An excise tax on cigarettes or gasoline will shift the supply curve in this direction.
What is to the left?
The cost of producing one more unit of a good.
What is marginal cost?
This Latin phrase means “all other things held constant” and is assumed when drawing a demand curve.
What is ceteris paribus?
This measures how much consumers respond to a change in price.
What is elasticity of demand?
Costs that change depending on how much is produced (example: raw materials).
What are variable costs?
Government rules on pollution control for car makers usually shift supply in this direction.
What is to the left? (or left)
The five main factors that shift the demand curve (name any three).
What are income, expectations, population, demographics, and tastes/advertising?
A table showing quantities one person will buy at various prices vs. all consumers in the market.
What are a demand schedule and a market demand schedule?
When demand is inelastic, an increase in price causes total revenue to move in this direction.
What is the same direction?
When adding more workers causes output to rise more slowly because workers share fixed tools and get in each other’s way.
What is diminishing marginal returns?
If sellers expect prices to rise in the future, they may hold back goods now, causing this effect on current supply.
What is a decrease in supply? (or supply shifts left)
Firms try to maximize this by finding the biggest gap between total revenue and total cost.
What is profit?