Unit 2 Flashcards
Law of demand
Inverse relationship between p and q demanded
Demand
Different quantities that people are willing and able to buy at different prices in a given period of time
Marginal utility
Satisfaction you derive from an additional unit of a product
Diminishing marginal utility
First unit of consumption yields more utility than the second and subsequent units
Total revenue
=price*quantity demanded
Supply
Different quantities that firms are willing and able to produce at different prices
Law of supply
Direct relationship between p and q
Short run
Period during which at least one of a firm’s resources is fixed
Long run
Period during which all of a firm’s resources can be varied
Law of diminishing returns
As a more of a variable resource is added to a given amount of other resources, marginal product eventually declines and could become negative
Economies of scale
Forces that reduce a firm’s average cost as the firm’s size, or scale, increases in the long run
Equilibrium
When the quantity consumers are willing and able to buy equals the quantity producers are willing and able to sell
Surplus
At a given price, the amount by which quantity supplied exceeds quantity demanded
Usually forces the price down
Shortage
At a given price, the amount by which quantity demanded exceeds quantity supplied
Usually forces price up
Transaction cost
The costs of time and information needed to carry out market exchange
Productive efficiency
Occurs when a firm produces at the lowest possible cost per unit
Allocative efficiency
Occurs when a firm produces the output most valued by consumers
Disequilibrium
A mismatch between quantity demanded and quantity supplied as the market seeks equilibrium
Usually temporary, except when government intervenes to set the price
Price floor
imposed minimum price for a good or service
•supposed to help producers(surplus)
Price ceiling
Imposed maximum price for a good or service
•supposed to help consumers(shortages)