Chapter 3 Flashcards
Competitive Market
A market that has many buyers and sellers, so that no single buyer or seller can influence the price.
Money Price
The number of dollars that must be given up in exchange for it.
Relative Price
Ratio of one price to another.
relative price is an opportunity cost
Quantity Demanded
The amount of goods & services that consumers plan to buy during a given period of time at a particular price.
The Law of Demand
States that other things remaining the same, the higher the price of a good, the smaller the quantity demanded, and vice versa.
Substitution Effect
When the price of a good rises, other things remaining the same, its relative price/opportunity cost rises.
Income Effect
When a price rises, other things remaining the same, it will rise relative to income.
Faced with a higher price and an unchanged income, people cannot afford to buy all the things they previously bought, which means they must decrease the quantities demanded of at least some goods & services
Demand vs Quantity Demanded
The term demand is the entire relationship between the price of a good and the quantity demanded of a good, where as the quantity demanded refers to the point on a demand curve at a particular price.
Willingness and Ability to Pay
The willingness and ability to pay is a measure of marginal benefit.
If a small quantity is available, the highest price that someone is willing and able to pay for one more unit is high; but as the quantity available increases, then the willingness and ability to pay decreases on the demand curve.
Substitute
A good that can be used in place of another good.
Ex - bus ride is a substitute for a train ride
- energy drink for an energy bar - etc.
Complement
A good that is used in conjunction with another good.
Ex - hamburgers and fries are compliments
- energy bars and exercising - etc.
Normal Good
A good for which demand increases as income increases.
Inferior Good
A good for which demand decreases as income increases.
The Law of Supply
States that other things remaining the same, the higher the price of a good, the greater the quantity supplied is; and vice versa.
Supply
Refers to the entire relationship b/w the price of a good and the quantity supplied of it.
