Chapter 3: Demand and Supply Flashcards

Vocabulary flashcards defining fundamental terms and economic principles from Chapter 3 on Demand and Supply.

Competitive Market

A market that has many buyers and many sellers so no single buyer or seller can influence the price.

Money Price

The amount of money needed to buy a good.

Relative Price

The ratio of a good's money price to the money price of the next best alternative good, which represents its opportunity cost.

Quantity Demanded

The amount that consumers are willing and able to buy during a particular time period, and at a particular price.

Law of Demand

The law stating that, other things remaining the same, the higher (smaller) the price of a good, the smaller (greater) is the quantity demanded.

Substitution Effect

The effect where, when the price of a good rises (falls), people look for substitutes, so the quantity demanded of that good decreases (increases).

Income Effect

The effect where, when the price of a good rises (falls) relative to income, people cannot (can) afford all the things they previously bought, so the quantity demanded of that good decreases (increases).

Demand Schedule

A schedule showing the quantity demanded at all possible prices, other things equal.

Demand Curve

A graphical representation of the demand schedule showing the relationship between the quantity demanded of a good and its price, other things equal.

Substitute

A good that can be used in place of another good.

Complement

A good that is used in conjunction with another good.

Normal Good

A good for which demand increases (falls) as income increases (falls).

Inferior Good

A good for which demand decreases (increases) as income increases (falls).

Quantity Supplied

The amount that producers are willing and able to sell during a given time period at a particular price.

Law of Supply

The law stating that, other things remaining the same, the higher (lower) the price of a good, the greater (smaller) is the quantity supplied.

Law of Increasing Costs

The general tendency for the opportunity cost of producing a good or service to increase as the quantity produced increases.

Supply Schedule

A schedule showing the quantity supplied at all possible prices, other things equal.

Supply Curve

A graphical representation of the supply schedule showing the relationship between the quantity supplied of a good and its price, other things equal.

Substitute in Production

Another good that can be produced using the same resources as a given good.

Complements in Production

Goods that must be produced together.

Market Equilibrium

A situation in a market occurring when the price balances the plans of buyers and sellers.

Equilibrium Price

The price at which the quantity demanded equals the quantity supplied.

Equilibrium Quantity

The quantity bought and sold at the equilibrium price.

Surplus

A situation where quantity supplied exceeds quantity demanded, occurring when price is above equilibrium.

Shortage

A situation where quantity demanded exceeds quantity supplied, occurring when price is below equilibrium.