Chapter 4 Flashcards
The process of buyers and sellers exchanging goods and services
Market
A market where the many buyers and sellers have little market power– each buyer’s or seller’s effect on market price is negligible
Competitive market
The quantity of a good or service demanded varies inversely (negatively) with its price, ceteris paribus
Law of Demand
A schedule that shows the relationship between price and quantity demanded
Individual demand schedule
A graphical representation that shows the inverse relationship between price and quantity demanded
Individual demand curve
The horizontal summation of individual demand curves
Market demand curve
A change in a good’s own price leads to a change in quantity demanded, a movement along a given demand curve
Change in quantity demanded
A change in one of the variables, other than the price of the good itself, that affects the willingness of consumers to buy
Shifts in the demand curve
Two goods are substitutes if an increase(decrease) in the price of one good causes an increase (decrease) in the demand for the other good
Substitutes
Two goods are complements if an increase (decrease) in the price of one good leads to a decrease (increase) in the demand for the other good
Complements
If income increases, the demand for a good increases; if income decreases, the demand for a good decreases
Normal goods
If income increases, the demand for a good decreases; if income decreases, the demand for a good increases
Inferior goods
The higher (lower) the price of the food, the greater (smaller) the quantity supplied, ceteris paribus
Law of supply
A graphical representation that shows the positive relationship between the price and quantity supplied
Individual supply curve
A graphical representation of the amount of goods and services that sellers are willing and able to supply at various prices
Market supply curve
