Chapter 2 Supply, Demand, And Markets Flashcards Preview

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Flashcards in Chapter 2 Supply, Demand, And Markets Deck (28):
0

"All else remaining equal" change one variable at a time

Cetaris Paribus

1

Each additional unit of a good produces less utility than the previous unit

Law of diminishing marginal utility

2

People only demand a greater quantity of a good if price decreases

Law of demand

3

Demand

Set of conditions that explain why people do or do not want to buy a product or service

4

Expectations

Depending on what people expect to happen they may pay either more or less for a good

5

Substitutes

When goods are substitutes for one another
Consumers will but the cheaper good

6

Compliments

Goods that are directly related to one another
If price of one good increases it's compliment will do the same

7

Law of increasing costs

Extra output of a good can only occur at higher prices because inputs needed are becoming more scarce or that output is occurring at a lower efficiency

8

Law of supply

Companies will only supply extra units of output if the market price increases

9

Input goods

Used to make all goods or services
Generally drives the production costs
Can be land labor or capital prices

10

Related outputs

Two or more goods that use the same inputs for production

11

Equilibrium

State of natural balance

12

Surplus

When quantity supplied is greater than the quantity demanded

13

Shortage

When the quantity demanded is greater than the quantity supplied

14

Price ceiling

Maximum prices that the government sets for certain products that society perceives to be too expensive

15

Price floor

When the government sets prices on something that must be accepted as an absolute minimum

16

Allocative efficiency

The output of each product at which it's marginal cost and marginal benefit is equal

17

Prices as rationing tools

The ability to establish a price at which selling and buying decisions are consistent

18

Dictate where to allocate resources

Prices

19

What are the determinates of demand

Change in income
Change in population
Expectations
Preferences
Substitutes
Compliments

20

What are the determinates of supply

Number of firms
Input costs
Technology
Business environment
Related outputs

23

Effects of a price floor

Decrease quantity demanded
Increase the quantity supplied
Leads to surplus

24

What are the effects of a price ceiling

Increases quantity demanded
Decreases quantity supplied
Black markets and waiting lists develop

25

Goals of any market

Allow PRICE to determine output
ALLOCATE the proper amount of resources to the economic activity
If supply or demand curves Shift, ALTER the LAND LABOR CAPITAL devoted to the market

26

What if a good or service was so vital that we had to GUARANTEE access or output? How would we do this?

Government price controls

27

Outcomes of a price ceiling

Shortages
Black markets
Waiting lines

28

Outcomes of a price floor

Surplus
Misallocation of resources
Use of TAX dollars

29

What is the problem with price ceilings and floors?

In either case, price signals are distorted. This causes INEFFICIENT resource allocation