1. Demand: willingness to buy a good or service and the ability to pay for it; how much of an item an individual is willing to purchase at each price

2. The two things needed for demand to exist are: willingness and ability

3. Quantity demanded: a point on the demand curve

4. Law of demand: prices go down, quantity demanded increases and that when prices go up, quantity demanded decreases

5. The shape of a demand curve is downward sloping from left to right.

Inverse relationship between P and Q; price increases Q decreases; individuals’ utility, or overall satisfaction, decreases as they obtain more of a good or service

6. Market demand curve: graph of data from market demand schedule (the entire market demand for blue t-shirts)

7. Normal goods: when consumer incomes increase, they demand more normal goods (new car)

8. Inferior goods: when consumer income increases, they demand less inferior goods (used goods)

9. Name the demand shift factors:

Consumer income

Market size/population

Consumer tastes/preferences

Consumer expectations (of price)

Substitute goods

Complementary goods

10. The one thing that never shifts demand is: price

11. When the price of a good increases, the demand for its substitute increases.

12. When the price of peanut butter goes up, the demand for its complement jelly decreases.

(When the price of peanut butter decreases, the demand for its complement jelly increases.)

13. Law of diminishing marginal utility: the marginal benefit of using each additional unit of a product during a given period of time will decline

14. Supply: the willingness and ability of producers to offer goods and services for sale; schedule of quantities a seller is willing to sell at various prices

15. The two things needed for supply to exist are: willingness and ability

16. Quantity supplied: a point on the supply curve

17. Law of supply: When prices decrease, quantity supplied decreases and when prices increase, quantity supplied increases

18. Explain why a supply curve is upward sloping.

Sellers supply more goods at a higher price.

19. Name the supply shift factors:

Input costs

Labor productivity

Technology

Government action (tax or subsidy)

Producer expectations (of price)

Number of producers

20. The one thing that never shifts supply is: price

21. Taxes always decrease supply. Subsides always increase supply.

22. Excise tax: a tax on a specific good (gas)

23. A government action can be in the form of: tax or subsidy

24. Equilibrium: where supply and demand meet; all goods supplied are demanded (consumed)

25. Disequilibrium: when we are not at equilibrium due to a shift in S or D

26. Competitive pricing: occurs when producers sell goods and services at lower prices to lure customers away from rival producers while still making a profit

27. One reason suppliers lower the price of a good is: sell more units due to a surplus of a good

28. What signal do higher prices send to consumers?

Not to buy or the good is of a higher status

29. What signal do higher prices send to producers?

It is time to enter the market (motivated by profit)

30. Price ceiling: legal maximum price that sellers may charge for a good/service; a price below the equilibrium price and results in a shortage

31. Price floor: Legal minimum price that buyers must pay for a good/service (above equilibrium)

An example: minimum wage

32. Elasticity: shows how sensitive a change in quantity is to a change in price

Elasticity of demand: shows how responsive consumers are to a change in price

Elasticity of supply: shows how responsive producers are are to a change in price

33. Elastic: responsive to a change in price; when a change in price leads to a relatively larger change in the quantity demanded (or supplied)

34. Inelastic: insensitive to a change in price; when a change in price leads to a relatively smaller change in the quantity demanded (or supplied)