Chapter 3: The Market at Work: Supply and Demand Flashcards
resources are allocated among households and firms with little or no government intervention
market economy
phrase coined by Adam Smith to refer to the unobservable market forces that guide resources to their highest-valued use
invisible hand
exists when there are so many buyers and sellers that each has only a small or negligible impact on the market price and output
competitive market
market in which either the buyer or seller can influence the market price
imperfect market
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 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
states that, all other things being equal, quantity demanded falls when the price rises, and rises when the price falls
law of demand
table that shows the relationship between the price of the good and the quantity demanded
demand schedule
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
something that consumers buy more of as income rises, holding all other factors equal
normal good
purchased out of necessity rather than choice
inferior good
two goods that are used together, when the price of one good rises, the demand for the related good goes down
complements
two goods that are used in place of each other, when the price of one good rises, the demand for the other 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
states that, all other things being held equal, the quantity supplied of a good rises when the price of the good rises, and falls when the price falls
law of supply
a table that shows the relationship between the prices and the quantity supplied at those prices
supply schedule
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
resources used in the production process
inputs
payment made by the government to encourage the consumption or production of a good or service
subsidy
occurs at the point where the demand curve and supply curve intersects
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
states 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
occurs whenever the quantity supplied is less than the quantity demanded, also called excess demand
shortage
occurs whenever the quantity supplied is greater than the quantity demanded, also called excess supply
surplus
