Supply and Demand

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

26 Terms

1

Market

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

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2

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

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3

Demand schedule

table that represents the quantity demanded at various price points

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4

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

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5

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

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6

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

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7

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

    1. 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

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8

Demand curve

a curve illustrating demand

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9

Determinants of demand

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

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10

Inferior goods

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

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11

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

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12

Complementary good

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

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13

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

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14

Change in quantity demanded

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

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15

Supply

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

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16

Supply schedule

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

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17

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

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18

Supply curve

a curve illustrating supply

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19

Determinants of supply

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

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20

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

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21

Change in quantity supplied

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

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22

Surplus

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

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23

Shortage

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

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24

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

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25

Equilibrium quantity

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

    1. the profit- maximizing output of a firm

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26

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

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