Ch 3 - Supply and Demand Flashcards
factor market
any place where factors of production (e.g., land, labor, capital) are bought and sold
product market
any place where finished goods and services (products) are bought and sold
opportunity cost
the most desired goods or services that are forgone in order to obtain something else
supply
the ability and willingness to sell (produce) specific quantities of a good at alternative prices in a given time period, ceteris paribus
demand
the ability and willingness to buy specific quantities of a good at alternative prices in a given time period, ceteris paribus
demand schedule
a table showing quantities of a good a consumer is willing and able to buy at alternative prices in a given time period, ceteris paribus
demand curve
a curve describing the quantities of a good a consumer is willing and able to buy at alternative prices in a given time period, ceteris paribus – slopes downward
law of demand
the quantity of a good demanded in a given time period increases as its price falls, ceteris paribus
substitute goods
goods that substitute for each other; when the price of good x rises, the demand for good y increases, ceteris paribus
complementary goods
goods frequently consumed in combination; when the price of good x rises, the demand for good y falls, ceteris paribus
ceteris paribus
the assumption of nothing else changing
demand shift
a change in the quantity demanded at any (every) given price
market demand
the total quantities of a good or service people are willing and able to buy at alternative prices in a given time period; the sum of individual demands
market supply
the total quantities of a good that sellers are willing and able to sell at alternative prices in a given time period; ceteris paribus
law of supply
the quantity of a good supplied in a given time period increases as its prices increases; ceteris paribus
equilibrium price
the price at which the quantity of a good demanded in a given time period equals the quantity supplied – changes when demand and supply shifts
market mechanism
the use of market prices and sales to signal desired outputs (or resource allocations) – the invisible hand
price floor
lower limits set for the price of a good
market surplus
the amount by which the quantity supplied exceeds the quantity demanded at a given price; excess supply
market shortage
the amount by which the quantity demanded exceeds the quantity supplied at a given prices; excess demand
price ceiling
upper limit imposed on the price of a good
3 predictable effects of price ceiling
increase the quantity demanded; decrease the quantity supplied; create a market shortage
6 determinants of market supply
technology; taxes and subsidies; factor cost; expectations; other goods; # of sellers
5 determinants of market demand
tastes; income; other goods; expectations; # of buyers
