Chapter 3 Terms Flashcards
Product Market
Market=where things are sold
Any place where finished goods and services (products) are bought and sold.
- grocery store, online shopping
- buying something
- finished product in stores (picnic table)
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.
-the seller
-we supply resources when we look for a job
(Offer labor for income)
Demand
The ability and willingness to buy specific quantities of a good at alternative prices in a given time period, ceteris paribus.
- the buyer
- demand good when we shop for groceries
- demand only exists if someone is willing and able to pay for the good
Demand Schedule
A table showing the quantities of a good a consumer is willing and able to buy at alternative prices in a given time period, ceteris paribus.
-what the consumer is willing and able to buy
(Will buy more, typically, if lower price)
-doesn’t tell why a consumer is willing to pay a
specific price
-“demand” is an expression of consumer buying intentions, willingness to buy, not a statement of actual purchase
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.
- graphical illustration of demand schedule
- visually shows how much someone will buy at a certain price
- “demand” emphasizes: the amount we buy of a good depends on its price
- price falls = more purchase of it
Law of Demand
Will I buy more Cheetos if they are $5 or $1?
The quantity of a good demanded in a given time period increases as its price falls, ceteris paribus.
- price falls = people buy more of it
- inverse relationship between price and quantity
Ceteris Paribus
The assumption of nothing else changing.
-demand curves show us how changes in market prices alter consumer behavior
Shift In Demand
A change in the quantity demanded at any (every) given price.
- determinants of demand can and do change
- only valid as long as everything remains the same
- when determinants change, there is a shift
- curve shifts right when income goes up
Increase in tastes also shifts demand curve to the right
-changes in demand: shifts of the demand curve because of changes in tastes, income, other goods, or expectations
Market Demand
(Market=people)
(Demand=what they like)
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.
- all the individual demand curves combined into one
- combined willingness to buy something
(Collective market demand)
(Sum of our individual demands)
-determined by the number of buyers and what their tastes are, incomes, other goods, and expectations
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.
- how much people have to actually sell
- how much people are willing to sell
- depends on the behavior of all the individuals selling the good or service that is wanted by consumers
- supply!
- constructed from supply decisions of individual sellers
Law of Supply
The quantity of a good supplied in a given time period increases as its price increases, ceteris paribus.
- larger quantities will be offered for sale if the price is high
- ceteris paribus: amount supplied increases at higher prices if the determinants of supply stay the same
Equilibrium Price
The price at which the quantity of a good demanded in a given time period equals the quantity supplied.
Market Mechanism
Invisible hand
The use of market prices and sales to signal desired outputs (or resource allocations)
Market: prices
Mechanism: machine, how much it needs to make
Price Floor
Minimum wage
Lower limit set for the price of a good.
