 | Term | Definition |
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market |
an institution or mechanism that brings together buyers (demanders) and seller (suppliers) of particular goods, services, or resources |
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demand |
quantity of a product/resource that consumers/businesses are “willing and able” to purchase at various possible prices at a specific time, other things equal |
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demand schedule |
table representing demand |
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law of demand |
all else equal, as (relative) price falls, the quantity demanded rises, and as (relative) price rises, the quantity demanded falls (negative/inverse relationship) |
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diminishing marginal utility |
successive units of a particular product yield less and less marginal utility |
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income effect |
a lower price increases the purchasing power of a buyer’s income |
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substitution effect |
at a lower price, buyers have the incentive to substitute what is now a less expensive product for similar products that are now relatively more expensive (“better deal”) |
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demand curve (impl) |
downward slope represents inverse relationship between price and quantity demanded |
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market demand |
sum of quantities demanded at each of the various possible prices on individual level |
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determinants of demand (demand shifters) |
factors other than price that affect purchases. assumed to be constant when demand curve is drawn. a change in these will result in a shift in the curve to the right or left |
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determinants of demand (list 5) |
1. preferences 2. # of consumers in market 3. consumer’s incomes 4. prices of related goods 5. consumer expectations of future prices and incomes |
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normal goods (superior goods) |
goods whose demand varies directly with money income |
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inferior goods |
goods whose demand varies inversely with money income |
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substitute goods |
goods that can be used in place of other goods (Colgate/Crest, Toyota/Honda) |
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complementary goods |
goods that are used together with others, usually demanded together. Price of one good goes up, demand for other goes down (gas/motor oil, tuition/textbooks) |
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independent goods |
the price of one good does not affect the demand of the other (butter/golf balls) |
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change in demand |
shift of the entire demand curve to right or left |
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change in quantity demanded |
movement from one point to another point on a fixed demand schedule or demand curve |
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supply |
quantity of a product/resource that households/businesses are “willing and able” to sell at various possible prices (revenues) at a specific time, other things equal |
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law of supply |
as price (revenue) rises, the quantity supplied rises; as price (revenue) falls, the quantity supplied falls |
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supply schedule |
table representing supply |
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supply curve (impl) |
upward slope represents direct relationship between price (revenue) and quantity supplied |
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determinants of supply (supply shifters) |
factors other than price (revenue) that will influence quantities supplied. assumed to be constant when supply curve is drawn. a change in these will result in a shift in the curve to the right or left |
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determinants of supply (list 6) |
1. resource prices 2. technology 3. taxes and subsidies 4. prices of other goods 5. price expectations 6. # of sellers in the market |
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change in supply |
change in the entire schedule and a shift of the entire curve right or left. cause is a change in one or more determinant of supply. |
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change in quantity supplied |
movement from one point to another on a fixed supply curve. cause is change in price of specific product considered |
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surplus |
excess supply. difference between quantity supplied and quantity demanded |
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shortage |
excess demand. difference between quantity demanded and quantity supplied |
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equilibrium price (market clearing) |
price at which there is no shortage or surplus. graphically, the intersection of supply and demand curves |
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equilibrium quantity |
quantity at which there is no shortage or surplus. graphically, the intersection of supply and demand curves |
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rationing function of prices |
ability of competitive forces of supply and demand to establish a price at which selling and buying decisions are consistent |
| Add or remove terms from this set |
