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Economics Unit 2
Chapter 7-8
| Term | Definition |
|---|---|
| demand | the amount of a good or service that consumers are able and willing to buy at various possible prices during a specified time period |
| supply | the amount of a good or service that producers are able and willing to sell at various prices during a specified time period |
| market | the process of freely exchanging goods and services between buyers and sellers |
| voluntary exchange | a transaction in which a buyer and a seller exercise their economic freedom by working out their own terms of exchange |
| law of demand | economic rule stating that the quantity demanded and price move in opposite directions |
| quantity demanded | the amount of a good or service that a consumer is willing and able to purchase at a specific price |
| real income effect | economic rule stating that individuals cannot keep buying the same quantity of a product if its price rises while their income stays the same |
| substitution effect | economic rule stating that if two items satisfy the same need and the price of one rises, people will buy more of the other |
| utility | the ability of any good or service to satisfy consumer wants |
| marginal utility | an additional amount of satisfaction |
| law of diminishing marginal utility | rule stating that the additional satisfaction a consumer gets from purchasing one more unit of a product will lessen with each additional unit purchased |
| demand schedule | table showing quantities demanded at different possible prices |
| demand curve | downward-sloping line that shows in graph form the quantities demanded at each possible price |
| elasticity | economic concept dealing with consumers’ responsiveness to an increase or decrease in the price of a product |
| price elasticity of demand | economic concept that deals with how much demand varies according to changes in price |
| elastic demand | situation in which a given rise or fall in a product’s price greatly affects the amount that people are willing to buy |
| inelastic demand | situation in which a product’s price change has little impact on the quantity demanded by consumers |
| law of supply | economic rule stating that price and quantity supplied move in the same direction |
| quantity supplied | the amount of a good or service that a producer is willing and able to supply at a specific price |
| supply schedule | table showing quantities supplied at different possible prices |
| supply curve | upward-sloping line that shows in graph form the quantities supplied at each possible price |
| technology | the use of science to develop new products and new methods for producing and distributing goods and services |
| law of diminishing returns | economic rule that says as more units of a factor of production are added to other factors of production, after some point total output continues to increase but at a diminishing rate |
| equilibrium price | the price at which the amount producers are willing to supply is equal to the amount consumers are willing to buy |
| shortage | situation in which the quantity demanded is greater than the quantity supplied at the current price |
| surplus | situation in which quantity supplied is greater than quantity demanded at the current price |
| price ceiling | a legal maximum price that may be charged for a particular good or service |
| rationing | the distribution of goods and services based on something other than price |
| black market | “underground” or illegal market in which goods are traded at prices above their legal maximum prices or in which illegal goods are sold |
| price floor | a legal minimum price below which a good or service may not be sold |
| entrepreneur | person who organizes, manages, and assumes the risks of a business in order to gain profits |
| startup | a beginning business enterprise |
| small-business incubator | private- or government-funded agency that assists new businesses by providing advice or low-rent buildings and supplies |
| inventory | extra supply of the items used in a business, such as raw materials or goods for sale |
| receipts | income received from the sale of goods and/or services; also, slips of paper documenting a purchase |
| sole proprietorship | business owned and operated by one person |
| proprietor | owner of a business |
| unlimited liability | requirement that an owner is personally and fully responsible for all losses and debts of a business |
| assets | all items to which a business or household holds legal claim |
| partnership | business that two or more individuals own and operate |
| limited partnership | special form of partnership in which one or more partners have limited liability but no voice in management |
| limited liability company | type of business enterprise that protects members against losing all of their personal wealth; members are taxed as if they were in a partnership |
| joint venture | partnership set up for a specific purpose for a short period of time |
| corporation | type of business organization owned by many people but treated by law as though it were a person; it can own property, pay taxes, make contracts, and so on |
| stock | share of ownership in a corporation that entitles the buyer to a certain part of the future profits and assets of the corporation |
| limited liability | requirement in which an owner’s responsibility for a company’s debts is limited to the size of the owner’s investment in the firm |
| articles of incorporation | document listing basic information about a corporation that is filed with the state where the corporation will be headquartered |
| corporate charter | license to operate granted to a corporation by the state where it is established |
| common stock | shares of ownership in a corporation that give stockholders voting rights and a portion of future profits (after holders of preferred stock are paid) |
| dividend | portion of a corporation’s profits paid to its stockholders |
| preferred stock | shares of ownership in a corporation that give stockholders a portion of future profits (before any profits go to holders of common stock), but no voting rights |
| bylaws | a set of rules describing how stock will be sold and dividends paid |
| franchise | contract in which one business (the franchisor) sells to another business (the franchisee) the right to use the franchisor’s name and sell its products |
| Fiscal Policy | federal government’s use of taxation and spending policies to affect overall business activity |
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perryherbst
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