Ch. 3 Prices and Interaction of Supply and Demand Flashcards
Perfectly Competitive Market
market that meets the conditions of having (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market
Demand Schedules
tables that show the relation between product pricing and the quantity of the product demanded
Quantity Demanded
amount of a good/service that consumers are willing to purchase at a given price
Demand Curve
shows relation between price and the quantity demanded
Market Demand
demand by all the consumers of a given good or service
Law of Demand
states (holding all else constant) when price of a products falls, the quantity of demand will increase; and when the price rises, quantity demand decreases
Substitution Effect
quantity demanded changes from a change in price-making the good more or less expensive relative to substitute goods
Income Effect
change in quantity demanded of a good that results from a change in the good’s price that increases or decreases a consumer’s purchasing power
Purchasing Power
quantity of goods a consumer can buy with a fixed income
ceteris paribus condition
“all else equal” - requirement that when analyzing relationship of 2 variables that all else must be constant
Variables that Shift Market Demand
income, price of related goods, tastes, population/demographics, expected future prices
Normal Goods
good for which the demand increases as income rises and decreases as income falls
Inferior Good
good for which demand increases as income falls and decreases as income rises
Substitues
goods/services that can be used for the same purpose
Complements
goods/services that are used together
Demographics
characteristics of a population with respect to age, race, gender
Quantity Supplied
amount of a good/service that a firm is willing and able to supply at a given price
Supply Curve
shows relation between price and the quantity of product supplied
Supply Schedule
table that shows relation between price and quantity supplied
Law of Supply
states (holding all else constant) increases in price cause increase in quantity supplied; and decrease in price decreases quantity supplied
Variables that Shift Market Supply
prices of inputs, technological changes, prices of related goods and services, number of firms in market, expected future prices
Technological Changes
positive or negative change in ability of a firm to produce a given level of output with a given quantity of inputs
Market Equilibrium
situation where quantity demanded equals quantity supplied
Competitive Market Equilibrium
market equilibrium with many buyers and sellers
Surplus
when quantity supplied is greater than quantity demanded
Shortage
quantity demanded is greater than quantity supplied
