CHAPTER 4: The Market Forces of Supply and Demand Flashcards
the forces that make market economies work
supply
demand
a group of buyers and sellers of a particular good or service
market
perfectly competitive.
To reach this highest form of competition, a market must have two characteristics:
(1) The goods offered for sale are all exactly the same, and
(2) the buyers and sellers are so numerous that no single buyer or seller has any influence over the market price.
a market in which there are many buyers and many sellers so that each has a negligible impact on the market price
competitive market
Because buyers and sellers in perfectly competitive markets must accept the price the market determines,
price takers
Not all goods and services, however, are sold in perfectly competitive markets.
Some markets have only one seller, and this seller sets the price. Such a seller is called a monopoly. Your local cable television company, for instance, may be a monopoly
monopoly
a table that shows the relationship between the price of a good and the quantity demanded
demand schedule
he amount of a good that buyers are willing and able to purchase
quantity demanded
the claim that, other things being equal, the quantity demanded of a good falls when the price of the good rises
law of demand
a graph of the
relationship between the price of a good and the quantity demanded
demand curve
To analyze how markets work, we need to determine the _______, the sum of all the individual demands for a particular good or service.
market demand
a good for which, other things being equal, an increase in income leads to an increase in demand
normal good
a good for which, other things being equal, an increase in income leads to a decrease in demand
inferior good
two goods for which an increase in the price of one leads to an increase in the demand for the other
substitutes
two goods for which an increase in the price of one leads to a decrease in the demand for the other
complements
the amount of a good that sellers are willing and able to sell
quantity supplied
the claim that, other things being equal, the quantity supplied of a good rises when the price of the good rises
law of supply
a table that shows the relationship between the price of a good and the quantity supplied
supply schedule
a graph of the relationship between the price of a good and the quantity supplied
supply curve
Any change that raises quantity supplied at
every price, such as a fall in the price of sugar, shifts the supply curve to the right and is called
increase in supply
a situation in which the market price has reached the level at which quantity supplied equals quantity demanded
equilibrium
any change that reduces the quantity supplied at every price shifts the supply curve to the left and is called
decrease in supply
the price that balances quantity supplied and quantity demanded
equilibrium price
the quantity supplied and the quantity demanded at the equilibrium price
equilibrium quantity
a situation in which quantity supplied is greater than quantity demanded sometimes called excess supply
surplus
a situation in which quantity demanded is greater than quantity supplied
shortage
the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance
law of supply and demand
______ refers to the position of the supply curve, whereas the_______
refers to the amount suppliers wish to sell
supply
quantity supplied
