Chapter 3 - Where Prices Come From: The Interaction of Supply and Demand Flashcards
Normal good
A good for which the demand increases as income rises. Visa-versa.
Inferior good
A good for which the demand increases as income falls. Visa-versa.
Complements
Goods and services that are used together.
Substitutes
Goods and services that can be used for the same purpose.
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.
Demand schedule
A table that shows the relationship between the price of a product 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.
“Ceteris Paribus” (all else equal) condition
The requirement that when analyzing the relationship between two variables, other variables must be held constant.
Market demand
The demand by all the customers of a given good or service.
Law of demand
The rule that, Ceteris Paribus, when the price of a product falls, the quantity demanded will increase. Visa-versa.
Demand curve
A curve that shows the relationship between the price and the quantity of the product demanded.
Substitution effect
The change in the quantity demanded of a good that results from the change in price relative to other goods.
Demographics
The characteristics of a population with respect to age, race, and gender.
Perfectly competitive market
A MKT with many buyers and sellers, all firms sell identical products, and there are no barriers to entry.
What variables shift MKT demand?
Income Price of related goods Tastes Population and demographics Expectations
