Vocabulary 4,5,6,7

1. Vocabulary 4,5,6,7 Oh yeah!!!

2. Supply • stuff (quantity) ~~~~quantity (brought to market at each and every possible price….AKA STUFF)

3. Demand • willingness and ability to purchase a desired item

4. Demand curve • downward sloping graph showing the quantity demanded at every possible price in the market

5. Demand schedule • the table that shows the quantity demanded at every price

6. Market equilibrium • intersection point of the demand and supply curve “X”

7. Surplus • supply exceeds demand (too much) • 1000 yearbooks were supplied • 700 yearbooks were demanded • = surplus = 300

8. Shortage • demand exceeds supply (too little) • 700 yearbooks were supplied • 1000 were demanded • Shortage = 300

9. Law of Demand • principle stating that when prices are high; less will be demanded and when prices are low; more will be demanded

10. (ex. Ice cream) – when it is expensive, we don’t buy it. • When it is cheap; we stock up.

11. 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!!!)

12. 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

13. 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!!!)

14. MARGINAL UTILITY extra usefulness marginal always means extra. Utility is synonymous with usefulness or satisfaction. So, marginal utility means

15. THE PRINCIPLE OF DIMINISHING MARGINAL UTILITY observation that people receive less and less satisfaction for every additional unitof a product consumed

16. 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!)

17. Law of Variable Proportions- • Principle that dictates that if one factor or ingredient is changed; the entire output is affected.

18. 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.

19. Principle of Diminishing Returns Economic law stating that additional units of input add less and less to the total product

20. 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

21. MARGINAL PRODUCT • Extra output • Used???? • (THIS DOES NOTNECESSARILY MEAN SURPLUS)

22. 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!”

23. 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

24. Price maker- a leader

25. Price taker - a follower

26. Price wars – fierce competition that leads to unusually low prices in the market (Warners’ Worm Wars)

27. 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.

28. Collusion – • illegal price fixing Episode of “Law and Order”…power co. or “Dallas”

29. Income effect- • if wages change; purchasing power is affected

30. 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.

31. 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.

32. Stages of production • increasing, diminishing, negative

33. Substitutes • – goods or services that can be used in place of one another ex. Tape/glue

34. Complements - • goods or services when used together increase in usefulness or value • ex. Mashed potatoes and gravy. • Peanut butter and fluff