Supply and Demand

AP Macro Econ. chapter 3/4 (?) (transferred from quizlet)

Market

Market

any institution or mechanism that brings together buyers (demanders) and sellers (suppliers) of a particular good or service

Demand

a schedule showing the amounts of a good or service that buyers (or a buyer) wish to purchase at various prices during some time period

Demand schedule

table that represents the quantity demanded at various price points

Law of demand

the principle that, other things equal, an increase in a products price will reduce the quantity of it demanded and conversely for a decrease in price

Diminishing marginal utility

successive units of a product yield less and less satisfaction so consumer will only buy additional units if the price is reduced

Income effect

a change in the quantity demanded of a product that results from the change in real income (purchasing power) produced by a change in the products price

Substitution effect

1. a change in the quantity demanded of a consumer good that results from a change in its relative expensiveness produced by a change in the product's price

2. 2. the effect of the change in a price of a resource on the quantity of the resource employed by the firm, assuming no change in its output

Demand curve

a curve illustrating demand

Determinants of demand

factors other than the price that determine the quantities demanded of a good or service

Inferior goods

a good or service whose consumption declines as income rises (and conversely) price remaining constant

Substitute good

products or services that can be used in the place of each other, when the price of one falls, the demand of the other product falls; conversely when the price of one product rises, the demand for the other product rises

Complementary good

products and services that are used together, when the price of one falls, the demand for the other increases (and conversely)

Change in demand

a change in the quantity demanded of a good or service at every price, a shift of the demand curve to the left or right

Change in quantity demanded

movement from one price-quantity combination to another on the demand curve

Supply

a schedule showing the amounts of a good or service that sellers (or a seller) will offer at various prices during some period

Supply schedule

a table showing various quantities of a product that will be supplied at various prices, all other things equal

Law of supply

the principle that other things equal an increase in the price of a product will will increase the quantity of it supplied and conversely for a price decrease

Supply curve

a curve illustrating supply

Determinants of supply

factors other than price that determine the quantities supplied of a good or service

Change in supply

a change in the quantity supplied of a good or service at every price, a shift of the supply curve to the left or right

Change in quantity supplied

a movement from one point to another on the fixed supply curve

Surplus

the amount by which the quantity supplied of a product exceeds the quantity demanded at a specific (above equilibrium) price

Shortage

the amount by which the quantity demanded of a product exceeds the quantity supplied at a particular (below equilibrium) price

Equilibrium price

the price in a competitive market at which the quantity demanded and the quantity supplied are equal there is neither a shortage or a surplus and there is no tendency for price to rise or fall

Equilibrium quantity

1. the quantity demanded and supplied at equilibrium price in an competitive market

2. 2. the profit- maximizing output of a firm

Rationing function of prices

the ability of market forces in competitive markets to equalize quantity demand and quantity supplied and to eliminate shortages and surpluses via changes in prices