| A | B |
|---|
| circular flow model | chart that economists use to show how economic systems work and how firms and people fit into these systems |
| product market | where all sales of consumer products take place |
| factor market | where all sales of the factors of production take place (natural resources, labor, capital, entrepreneurship) |
| demand | consumers willingness to buy a product at a particular price |
| law of demand | people will buy more of a product at a lower price than they will at a higher price, if nothing else changes |
| demand schedule | table that shows how many products can be sold at different prices |
| demand curve | graph that shows the quantities that will be demanded at various prices |
| determinants of demand | 4 factors that cause demand (taste, income, price of related products, number of potential customers) |
| substitute goods | goods that can be used in place of each other |
| complementary goods | products used with each other |
| diminishing returns | At a certain level of production, the cost per unit of producting additional units increases. This occurs because when one factor of production increases but other factors are held constant, a point is reached where the additional inputs will add less production than the preceding inputs |
| supply | number of units a firm is willing to sell |
| law of supply | at higher prices producers offer more products for sale than they would be willing to offer at lower prices |
| supply schedule | table that shows how many products would be supplied at different prices |
| supply curve | graph that shows how many products would be supplied at different prices |
| point of equilibrium | intersection of the demand and supply curves, indicating the price and quantity at which a product will be sold in the market |
| shortage | amount of a product customers want to buy in excess of the quantity a firm offers for sale |
| surplus | amount of products that a firm offers for sale in excess of the quantity customers are willing to buy |
| elasticity | effect that a change in price has on demand |
| price inelastic | people want the same amount of a product no matter what its price (as in food) |
| price elastic | when products' prices go up, sales fall rapidly (as in luxuries) |
