CH. 3 SUPPLY & DEMAND Flashcards
Economy where resources are allocated among households and firms with little to no government interference.
Market Economy
Phrase used to refer to the unobservable market forces that guide resources to their highest-valued use.
Invisible Hand
A market in which there are so many buyers and sellers that each only has a small (negligible) impact on the market price and output.
Competitive Market
A market in which either the buyer or the seller can influence the market price.
Imperfect Market
Is a firm’s ability to influence the price of a good or service by exercising control over its demand, supply, or both.
Market Power
Exists when a single company supplies the entire market for a particular good or service.
Monopoly
The amount of a good or service that buyers are willing and able to purchase at the current price
Quantity Demanded
The law that, all other things being equal, quantity demanded falls when the price rises, and rises when the price falls
Law of Demand
A table that shows the relationship between the price of a good and the quantity demanded.
Demand Schedule
A graph of the relationship between the prices in the demand schedule and the quantity demanded at those prices
Demand Curve
The sum of all the individual quantities demanded by each buyer in the market at each price
Market Demand
The value of your income expressed in terms of how much you can afford
Purchasing Power
A good consumers buy more of as income rises, holding other things constant
Normal Good
A good purchased out of necessity rather than choice
Inferior Good
Two goods that are used together; when the price of a complementary good rises, the demand for the related good goes down
Complements
Goods that are used in place of each other; when the price of a substitute good rises, the quantity demanded of that good falls and the demand for the related good goes up
Substitutes
The amount of a good or service that producers are willing and able to sell at the current price
Quantity Supplied
The law that, all other things being equal, the quantity supplied of a good rises when the price of the good rises, and falls when the price of the good falls
Law of Supply
A table that shows the relationship between the price of a good and the quantity supplied
Supply Schedule
A graph of the relationship between the prices in the supply schedule and the quantity supplied at those prices
Supply Curve
The sum of the quantities supplied by each seller in the market at each price
Market Supply
The resources (labor, land, and capital) used in the production process
Inputs
A payment made by the government to encourage the consumption or production of a good or service
Subsidy
Condition occurring at the point where the demand curve and the supply curve intersect
Equilibrium
The price at which the quantity supplied is equal to the quantity demanded; also known as the market-clearing price
Equilibrium price
The amount at which the quantity supplied is equal to the quantity demanded
Equilibrium Quantity
The law that the market price of any good will adjust to bring the quantity supplied and the quantity demanded into balance
Law of Supply and Demand
market condition when the quantity supplied of a good is less than the quantity demanded; also called excess demand
Shortage
Market condition when the quantity supplied of a good is greater than the quantity demanded; also called excess supply
Surplus
