Chapter 3: Where Prices Come From: The Interaction of Demand and Supply Flashcards
perfectly competitive market
a market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market
demand schedule
a table that shows the relationship between the price of a products and the quantity of the product demanded
quantity demanded
the amount of a good or service that a consumer is willing and able to purchase at a given price
demand curve
a curve that shows the relationship between the price of a product and the quantity of the product demanded
market demand
the demand by all the consumers of a given good or service
law of demand
the rule that, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease
substitution effect
the change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes
income effect
the change in the quantity demanded of a good that results from the effect of a change in the good’s price on consumers’ purchasing power
ceteris paribus (“all else equal”) condition
the requirement that when analyzing the relationship between two variables – such as price and quantity demanded – other variables must be held constant
normal good
a good for which the demand increases as income rises and decreases as income falls
inferior good
a good for which the demand increases as income falls and decreases as income rises
substitutes
goods and services that can be used for the same purpose
complements
goods and services that are used together
demographics
the characteristics of a population with respect to age, race, and gender
quantity supplied
the amount of a good or service that a firm is willing and able to supply at a given price
