Chapter 3 Definitions Flashcards
Market, supply, demand
All of the arrangements that individuals have for exchanging with one another
Market
A schedule showing how much of a good or service people will purchase at any price during a specified time period, other things being constant
Demand
The observation that there is a negative, or inverse relationship between the price of any good or service and the quantity demanded, holding other factors constant
Law of Demand
The money price of one commodity divided by the money price of another commodity; the number of units of one commodity that must be sacrificed to purchase one unit of another commodity
Relative Price
The price expressed in today’s dollars; also called the absolute, nominal or
Money price
A graphical representation of the demand schedule. It is a negatively sloped line showing the inverse relationship between the price and the quantity demanded )other things being equal)
Demand Curve
The demand of all consumers in the marketplace for a particular good or service. The summation at each price of the quantity demanded by each individual.
Market Demand
Determinants of the relationship between price and quantity that are unchanged along a curve. Changes in these factors cause the curve to shift
Ceteris Paribus Conditions
Goods for which the demand rises as income rises. Most goods are normal goods.
Normal goods
Goods for which demand falls as income rises
Inferior Goods
Two goods are ____________ when the change in the price of one causes a shift in demand for the other in the same direction as the price change
substitutes
Two goods are ____________________ when a change in the price of one causes an opposite shift in the demand for the other
Complements
A schedule showing the relationship between price and quantity supplied for a specified period of time, other things being equal
Supply
The observation that the higher the price of a good, the more of that good sellers will make available over a specified time period, other things being equal
Law of Supply
The graphical representation of the supply schedule; a line showing the supply schedule, which generally slopes upward (has a positive slope) other things being equal
Supply Curve
A negative tax; a payment to a producer from the government, usually in the form of a cash grant per unit
Subsidy
A price that clears the market, at which quantity demanded equals quantity supplied; the price where the demand curve intersects the supply curve
Market clearing or equilibrium price
The situation in which quantity supplied equals quantity demanded at a particular price
Equilibrium
A situation in which quantity demanded is greater than quantity supplied at a price below the market clearing price
Shortage
A situation in which quantity supplied is greater than quantity demanded at a price above the market clearing price
Surplus
