Normal good
A good that consumers demand more of when their incomes increase.
Inferior good
A good that consumers demand less of when their incomes increase.
Substitutes
Good used in place of each other.
Compliments
Two goods that are bought and used together.
Elasticity of Demand
A measure of how consumers react to a change in price.
Inelastic
Describes demand that is not very sensitive to a change in price.
Elastic
Describes demand that is very sensitive to a change in price.
Unitary elastic
Describes demand whose elasticity is exactly equal to 1.
Total Revenue
The total amount of money a firm receives by selling goods or services.
CHAPTER 5
Law of Supply
Tendency of suppliers to offer more of a good at a higher price.
Quantity supplied
The amount a supplier is willing and able to supply at a certain price.
Supply schedule
A chart that lists how much of a good a supplier will offer at different prices.
Variable
A factor that can change.
Market supply schedule
A chart that lists that how much of a good all suppliers will offer at different prices.
Supply curve
A graph of the quantity supplied of a good at different prices.
Market supply curve
A graph of a quantity supplied of a good by all suppliers at different prices.
Elasticity of Supply
A measure of the way quantity supplied reacts to a change in price.
Key factor that determines
Marginal product of labor
The change in output from hiring one additional unit of labor.
Increasing marginal returns
Diminishing marginal returns
Fixed cost
A cost that does not change, no matter how much of a good is produced.
Variable cost
A cost that rises or falls depending on how much is produced.
Total cost
Fixed costs + Variable costs.
Marginal cost
The cost of producing one more unit of a good.
Marginal revenue
The additional income from selling one more unit of a good; sometimes equal to price.
Operating cost
The cost of operating a facility such as a store or factory.
Subsidy
A government payment that supports a business or market.
Excise tax
A tax on the production or sale of a good.
Regulations
Government intervention in a market that affects the production of a good.
CHAPTER 6
Equilibrium
The point at which quantity demand and quantity supplied are equal.
Disequilibrium
Describes any price or quantity not at equilibrium; when quantity supplied is not equal to quantity demanded in a market.
Excess demand
When quantity demanded is more than quantity supplied.
Excess supply
When quantity supplied is more than quantity demanded.
Price ceiling
A maximum price that can be legally charged for a good or service.
Rent control
A price ceiling placed on rent.
Minimum wage
A minimum price that an employer can pay a worker for an hour of labor.
Surplus
Situation in which quantity supplied is greater than quantity demanded; also known as excess supply.
Search costs
The financial and opportunity costs consumers pay when searching for a good or service.
Supply shock
A sudden shortage of a good.
Rationing
A system of allocating scarce goods and services using criteria other than price.
Black market
A marker in which goods are sold illegally.
Spillover costs
Costs of production that affect people who have no control over how much of a good is produced.
A good that consumers demand more of when their incomes increase.
Inferior good
A good that consumers demand less of when their incomes increase.
Substitutes
Good used in place of each other.
Compliments
Two goods that are bought and used together.
Elasticity of Demand
A measure of how consumers react to a change in price.
Inelastic
Describes demand that is not very sensitive to a change in price.
Elastic
Describes demand that is very sensitive to a change in price.
Unitary elastic
Describes demand whose elasticity is exactly equal to 1.
Total Revenue
The total amount of money a firm receives by selling goods or services.
CHAPTER 5
Law of Supply
Tendency of suppliers to offer more of a good at a higher price.
Quantity supplied
The amount a supplier is willing and able to supply at a certain price.
Supply schedule
A chart that lists how much of a good a supplier will offer at different prices.
Variable
A factor that can change.
Market supply schedule
A chart that lists that how much of a good all suppliers will offer at different prices.
Supply curve
A graph of the quantity supplied of a good at different prices.
Market supply curve
A graph of a quantity supplied of a good by all suppliers at different prices.
Elasticity of Supply
A measure of the way quantity supplied reacts to a change in price.
Key factor that determines
Marginal product of labor
The change in output from hiring one additional unit of labor.
Increasing marginal returns
Diminishing marginal returns
Fixed cost
A cost that does not change, no matter how much of a good is produced.
Variable cost
A cost that rises or falls depending on how much is produced.
Total cost
Fixed costs + Variable costs.
Marginal cost
The cost of producing one more unit of a good.
Marginal revenue
The additional income from selling one more unit of a good; sometimes equal to price.
Operating cost
The cost of operating a facility such as a store or factory.
Subsidy
A government payment that supports a business or market.
Excise tax
A tax on the production or sale of a good.
Regulations
Government intervention in a market that affects the production of a good.
CHAPTER 6
Equilibrium
The point at which quantity demand and quantity supplied are equal.
Disequilibrium
Describes any price or quantity not at equilibrium; when quantity supplied is not equal to quantity demanded in a market.
Excess demand
When quantity demanded is more than quantity supplied.
Excess supply
When quantity supplied is more than quantity demanded.
Price ceiling
A maximum price that can be legally charged for a good or service.
Rent control
A price ceiling placed on rent.
Minimum wage
A minimum price that an employer can pay a worker for an hour of labor.
Surplus
Situation in which quantity supplied is greater than quantity demanded; also known as excess supply.
Search costs
The financial and opportunity costs consumers pay when searching for a good or service.
Supply shock
A sudden shortage of a good.
Rationing
A system of allocating scarce goods and services using criteria other than price.
Black market
A marker in which goods are sold illegally.
Spillover costs
Costs of production that affect people who have no control over how much of a good is produced.
