Chpt 3: Where Prices Come From: The Interaction of Demand and Supply Flashcards
Perfectly Competitive Market
A market that meets the conditions of having (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.
Demand Schedules
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
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 consumers of a given good or service
Law of Demand
A rule that states 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, holding constant the effect of the price change on consumer purchasing power.
Income Effect
The change in quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding all other factors constant.
Ceteris Paribus Condition
(“All else equal”) 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
Supply Schedule
A table that shows the relationship between the price of a product and the quantity of the product supplied
Supply Curve
A curve that shows the relationship between the price of a product and the quantity of the product supplied
Law of Supply
A rule that states that, holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in quantity supplied
Technological Change
A positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs
Market Equilibrium
A situation in which quantity demanded equals quantity supplied
Competitive Market Equilibrium
A market Equilibrium with many buyers and sellers
Surplus
A situation where the quantity supplied is greater than the quantity demanded
Shortage
A situation in which the quantity demanded is greater than the quantity supplied
Natural Disasters
A hurricane, Flood or similar act of nature that causes damage to stores, factories, or office buildings
Pandemic
A situation in which a disease becomes sufficiently widespread as to significantly affect economic activity
