Chapter 3 Flashcards
Market Economy
an economy in which private individuals, rather than a centralized planning authority, make the decisions
Market
Buyers and sellers who trade a particular good or service
Competitive Market
a market in which fully informed, price-taking buyers and sellers easily trade a standardized good or service;
- a standardized good
- full information
- no transaction costs
- price-taking participants
Standardized Good
a good for which any two units have the same features and are interchangeable
Transaction Costs
the costs incurred by buyer and selling in agreeing to and executing a sale of goods or services
Price Taker
a buyer or seller who cannot affect the market price
Demand
how much of something people are willing and able to buy under certain circumstances
Quantity Demanded
the amount of a particular good that buyers will purchase at a given price during a specified period
Law of Demand
a fundamental characteristic of demand which states that, all else equal, quantity demanded rises as price falls
Demand Schedule
a table that shows the quantities of a particular good or service that consumers will demand at various prices
Demand Curve
a graph that shows the quantities of a particular good or service that consumers will demand at various prices; represents each price-quantity combination from the demand schedule as a point on a graph;
(quantity goes on the x-axis; price on the y-axis)
Demand: Five Major Categories of Non-price Determinants
- Consumer Preference
- Price of Related Goods
- Incomes
- Expectations of Future Prices
- Number of Buyers in the Market
Consumer Preference
personal likes and dislikes that make buyers more or less inclined to purchase a good
Substitutes
goods that serve a similar-enough purpose that a consumer might purchase one in place of the other
Complements
goods that are consumed together so that purchasing one will make consumers more likely to purchase the other
Normal Goods
goods for which demand increases as income increases
Inferior Goods
goods for which demand decreases as income increases
Quantity Supplied
the amount of a particular good or service that producers will offer for sale at a given price during a specified period
Law of Supply
a fundamental characteristic of supply which states that, all else equal, quantity supplied rises as price rises
Supply Schedule
a table that shows the quantities of a particular good or service that producers will supply at various prices
Supply: Five Major Categories of Non-price Determinants
- prices of related goods
- technology
- prices of inputs
- expectations of future prices
- number of sellers in the market
Equilibrium
the situation in a market when the quantity supplied equals the quantity demanded; graphically, this convergence happens when the demand curve intersects the supply curve
Equilibrium Price
the price at which the quantity supplied equals the quantity demanded
Equilibrium Quantity
the quantity that is supplied and demanded at equilibrium price
Market Demand
the sum of all individual consumer choices at any given time, with any given price
Ceteris Paribus
“all other things being the same”; first requirement for the law of demand; when all else is held equal, quantity demanded rises as price falls
