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Market
answer
a group of buyers and sellers of a particular good or service
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Competitive Market
answer
a market in which there are many buyers and many sellers so that each has a negligible impact on the market price
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Quantity Demanded
answer
the amount of a good that buyers are willing and able to purchase
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Law of Demand
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the claim that, other things being equal, the quantity demanded of a good falls when the price of the good rises
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Demand Schedule
answer
a table that shows the relationship between the price of a good and the quantity demanded
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Demand Curve
answer
a graph of the relationship between the price of a good and the quantity demanded
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Normal Good
answer
a good for which, other things being equal, an increase in income leads to an increase in demand
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Inferior Good
answer
a good for which, other things being equal, an increase in income leads to a decrease in demand
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Substitutes
answer
two goods for which an increase in the price of one leads to an increase in the demand for the other
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Complements
answer
two goods for which an increase in the price of one leads to a decrease in the demand for the other
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Quantity Supplied
answer
the amount of a good that sellers are willing and able to sell
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Law of Supply
answer
the claim that, other things being equal, the quantity supplied of a good rises when the price of the good rises
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Supply Schedule
answer
a table that shows the relationship between the price of a good and the quantity supplied
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Supply Curve
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a graph of the relationship between the price of a good and the quantity supplied
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Equilibrium
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a situation in which the market price has reached the level at which quantity supplied equals quantity demanded
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Equilibrium Price
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the price that balances quantity supplied and quantity demanded
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Equilibrium Quantity
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the quantity supplied and the quantity demanded at the equilibrium price
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Surplus (excess supply)
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a situation in which quantity supplied is greater than quantity demanded
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Shortage
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a situation in which quantity demanded is greater than quantity supplied
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Law of Supply and Demand
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the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance
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Perfectly competitive
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All goods exactly the same; buyers & sellers so numerous that no one can affect market price—each is a "price taker"
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Three Steps to Analyzing Changes in Equilibrium
answer
1. Decide whether the event shifts the
supply curve, the demand curve, or, in
some cases, both curves
2. Decide whether the curve shifts to the right or to the left
3. Use the supply-and-demand diagram, compare the initial and the new equilibrium, effects on equilibrium price and quantity
supply curve, the demand curve, or, in
some cases, both curves
2. Decide whether the curve shifts to the right or to the left
3. Use the supply-and-demand diagram, compare the initial and the new equilibrium, effects on equilibrium price and quantity
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