Product Market In the circular flow, the market in which households purchase the goods and services that firms produce

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Wendy Andrews
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1 Microeconomics Microeconomics is the study of the "smaller picture" of the economy. It focuses more on basic theories of supply and demand and how individual businesses decide how much of something to produce and how much to charge for it Circular Flow Diagram A diagram of the economy that shows the flow of goods and services, factors of production, and money between households and firms Product Market In the circular flow, the market in which households purchase the goods and services that firms produce Resource Market In the circular flow, this represents the exchange of resources between households and businesses in the economy. Money Any item that is generally acceptable to sellers in exchange for goods and services. Medium of Exchange Anything that is used to determine value during the exchange of goods and services

2 Law of Supply Principle that more will be offered for sale at high prices than at lower prices Law of Demand Consumers buy more of a good when its price decreases and less when its price increases. Market Clearing Price the price at which the amount supplied is equal to the amount demanded Equilibrium Price The price at which the amount of goods producers supply meets the amount of goods consumers demand. Equilibrium Quantity Quantity supplied and quantity demanded at the equilibrium price Incentive Any factor that encourages or motivates a person to do something.

3 Price Elasticity of Demand How sensitive consumers are to price change Price Elasticity of Supply Measure of how much sellers respond to a change in the price of the good. Elastic demand A situation in which consumer demand is sensitive to changes in price Inelastic Describes demand that is not very sensitive to a change in price Determinants of Demand The factors that determine demand and lead to an actual shift of the demand curve to either the right or the left. Determinants of Supply The factors that determine supply and lead to an actual shift of the supply curve to either the right or the left.

4 Number of Consumers The amount of people willing and able to buy a good or service. It is a factor affecting market demand. Income of Consumers The amount of money household make. This can cause the demand curve to shift. Complimentary goods Goods that are often used together Expectations of consumers How consumers feel about the future. This can cause the demand curve to shift. Substitute goods Goods that can be used in place of another good Taste of Consumers A change in preference for or away from a particular good or service. This can cause a shift of the demand curve.

5 Subsidies A government payment to an individual, business, or other group to encourage or protect a certain type of economic activity. This can cause a shift of the supply curve. Taxes A government mandated payment that can increase or decrease over time. This can cause a shift of the supply curve. Expectations of sellers A sellers feeling about the future. This can cause a shift of the supply curve. Productivity How efficient workers are. This can cause a shift of the supply curve. Input costs A change in the factors of production used in a good or service. This can cause a shift of the supply curve. Number of sellers The amount of sellers providing a good or service for sale. This can cause a shift of the supply curve.

6 Government Regulation Creation of new rules or laws that can affect the cost of production. This can cause a shift of the supply curve. Technology Inventions or innovations that allow increased productivity. A change can cause a shift in the supply curve. Price Floor A legal minimum on the price at which a good can be sold Price Ceiling A legal maximum on the price at which a good can be sold Surplus A situation in which quantity supplied is greater than quantity demanded Shortage A situation in which quantity demanded is greater than quantity supplied Sole Proprietorship A business with a single owner who takes all the financial risks and reaps all the financial rewards

7 Partnership a business that is owned and operated by two or more people who share the work and the profits or losses Corporation A business owned by stockholders who share in its profits but are not personally responsible for its debts Profit Money that is left after expenses have been paid for from a business or an investment. Perfect Competition A market structure in which a large number of firms all produce the same product Monopolistic Competition a market structure in which many companies sell products that are similar but not identical Oligopoly a market structure in which only a few sellers offer similar or identical products Monopoly A market dominated by a single seller stock A share of ownership in a corporation.

A. a change in demand. B. a change in quantity demanded. C. a change in quantity supplied. D. unit elasticity. E. a change in average variable cost.

1. The supply of gasoline changes, causing the price of gasoline to change. The resulting movement from one point to another along the demand curve for gasoline is called A. a change in demand. B. a change