Definitions 1
Define: Demand
The desire to own something and the ability to pay for it
Define: subsidy
a government payment that supports a business or market
demand will go up
Shortages cause firms to ___ prices
Raise
The lowest amount of money an employee is payed for a service
minimum wage
Define: complements
Two good that are bought and used together
Define: Excise Tax
A tax on the production or sale of a good
explain what will happen to supply when production prices increase
Supply will decrease
Surpluses cause firms to ___ prices
Cut
under what conditions is a market at equilibrium?
when supply is equal to demand
Define: Substitutes
Goods that can be used in place of another
Define: Barter
exchange of one type of good or service for another
Explain what will happen to demand when supply goes up
demand will increase
When price falls below equilibrium there is a ___?
Shortage
If elasticity is greater than 1, demand is ___?
elastic
Define: Inelastic
A good consumers will buy no matter the price
Define: Supply Shock
a sudden shortage of a good
law of demand states that when prices increase, demand will ____
Decrease
When price is above equilibrium, there is a ___?
Surplus
What is a price floor
the lowest price a company will charge for a good or service
Define: Substitute effect
consumers will buy a cheaper item that has the same use opposed to a more expensive item
Define: Price system
a balance of supply and demand
law of supply states that when the price of a good increases, supply will ____
increase
if demand decreases, what can we assume about the price of an item?
The price decreased
if elasticity is equal to 1, demand is ___?
Unitary Elastic