Vocabulary 4,5,6,7
Oh yeah!!!
Supply
• stuff (quantity)
~~~~quantity (brought to market at each and
every possible price….AKA STUFF)
Demand
• willingness and ability to purchase
a desired item
Demand curve
• downward sloping graph
showing the quantity demanded at
every possible price in the market
Demand schedule
• the table that shows
the quantity demanded at every price
Market equilibrium
• intersection point of the
demand and supply curve “X”
Surplus
•
•
•
•
supply exceeds demand (too much)
1000 yearbooks were supplied
700 yearbooks were demanded
= surplus = 300
Shortage
•
•
•
•
demand exceeds supply (too little)
700 yearbooks were supplied
1000 were demanded
Shortage = 300
Law of Demand
• principle stating that when prices
are high; less will be demanded and when
prices are low; more will be demanded
• (ex. Ice cream) – when it is expensive, we
don’t buy it.
• When it is cheap; we stock up.
Hints
• This is from the viewpoint of the consumer!
• Note: never use the word supply when
defining demand!
• Always start with price!!
• Price (G) Demand (H).
•
When Price (H) Demand (G)
• Law of demand; different directions; both
start with D!!!)
LAW OF SUPPLY
• principle that states
that more will be brought to market
when the price is high and less when
the price is low.
• Ex: monster mitt
HINTS
• This is from the viewpoint of the producer or
supplier.
• Note: never use the word demand when
defining supply!
• ALWAYS start with price!!!
• Also note that the arrows are going in the same
direction.
• Price G Supply G . When Price H Supply H
• Law of Supply: same direction, both start with
S!!!)
MARGINAL UTILITY
extra usefulness
marginal always means extra. Utility is
synonymous with usefulness or satisfaction. So,
marginal utility means
THE PRINCIPLE OF DIMINISHING
MARGINAL UTILITY
OBSERVATION THAT PEOPLE RECEIVE
LESS AND LESS SATISFACTION FOR
EVERY ADDITIONAL UNIT
OF A PRODUCT CONSUMED
#
1
2
3
4
5
6
$
.
EXAMPLE
• A classmate ate chocolate chip cookies until
he didn’t want anymore. This student paid
for every cookie he ate. The amount he paid
decreased as he continued to eat the cookies.
This illustrated the point of decreasing
SATISFACTION!)
Law of Variable Proportions• Principle that dictates that if one factor or
ingredient is changed; the entire output is
affected.
EXAMPLE
• Mrs. Paul accidentally put a cup of salt in her
batter rather than a cup of sugar. She
changed one ingredient/factor and it
changed the taste of the whole batter.
Principle of Diminishing Returns
Economic law stating that additional units of
input add less and less to the total product
EXAMPLE
I used hot chocolate mix and water as an
example. I added the packet of powdered
cocoa mix to 3 cups of water instead of ¾ cup
as was stated in the instructions.
And, what did I get? I got less and less hot
chocolate flavor…less
MARGINAL PRODUCT
• Extra output
• Used????
• (THIS DOES NOT NECESSARILY
MEAN SURPLUS)
Break- even point Amount of output needed a firm is to recover
its cost.
•
Ex. Monster Mitts cost me $80 to produce
at $8 a glove, I have to sell 10 in order to
“break-even!”
Paradoxical demand curve• this acts “contrary” to the demand.
• It does so because it is concerned with “inferior goods.”
Inferior goods are items that low income families
purchase. Let us say they buy eggs, cheese, and steak in
order to fulfill protein requirements in the diet. Let us
further say that, the price of eggs, cheese and steak all
increase due to inflation. Prices sky rocket, especially the
price of steak. Families actually purchase MORE eggs and
cheese than they did before even though said prices have
increased. WHY? It is because the price of steak is out of
sight. They are “substituting” the eggs and cheese for the
steak. Hence, a contradiction to the law of demand
because it says
Price makera leader
Price taker a follower
Price wars
– fierce competition that leads to unusually low
prices in the market
(Warners’ Worm Wars)
Oligopoly• a handful of firms controls the industry. They
produce the same good or provide the same
service. Consumers can tell the difference
between them. What one does; the others
follow suit. (In other words, they copy each
other.) Ex. McD, BK and Wendy’s.
Collusion –
• illegal price fixing
Episode of “Law and Order”…power co.
or “Dallas”
Income effect• if wages change; purchasing power is
affected
Elastic –
• a change in price causes a change in demand.
• Ex. Gum becomes cheaper or more it
becomes more expensive and our demand is
affected.
Inelastic –
• Inelastic – a change in price has little or no
impact on demand. (eye glasses)
• Ex. Eye glasses become cheaper or more
expensive. We still purchase them.
Stages of production
• increasing, diminishing, negative
Substitutes
• – goods or services that can be used in place
of one another
ex. Tape/glue
Complements • goods or services when used together
increase in usefulness or value
• ex. Mashed potatoes and gravy.
• Peanut butter and fluff