Chapter 3 MicroEcon Hubbard/O'Brien

Perfectly Competitive Market (pg 74)

A market that meets the conditions of having (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.

Demand Schedule (pg 74)

A table that shows the relationship between the price of a product and the quantity of the product demanded.

Quantity demanded (pg 74)

The amount of a good or service that a consumer is willing and able to purchase at a given price.

Demand Curve (pg 74)

A curve that shows the relationship between the price of a product and the quantity of the product demanded.

Market Demand (pg 74)

The demand by all the consumers of a given good or service.

Law of Demand (pg 75)

A rule that states, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease.

Substitution Effect (pg 75)

The change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes.

Income Effect (pg 75)

The change in the quantity demanded of a good that results from the effect of a change in the good's price on consumer's power.

Ceteris Paribus "All else equal condition" (pg 76)

The requirement that when analyzing the relationship between two variables--such as price and quantity demanded--other variables must be held constant.

Variables That Shift Market Demand (pg 76)

-Income

-Prices of related goods

-Tastes

-Population and demographics

-Expected future prices

Normal good (pg 76)

A good for which the demand increases as income rises and decreases as income falls.

Inferior good (pg 77)

A good for which the demand increases as income falls and decreases as income rises.

Substitutes (pg 77)

Goods and services that can be used for the same purpose.

Complements (pg 78)

Goods and services that are used together.

Demographics (pg 78)

The characteristics of a population with respect to age, race, and gender.

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Quantity supplied (pg 82)

The amount of a good or service that a firm is willing and able to supply at a given price.

Supply Schedule (pg 83)

A table that shows the relationship between the price of a product and the quantity of the product supplied.

Supply curve (pg 83)

A curve that shows the relationship between the price of a product and the quantity of the product supplied.

Law of Supply (pg 83)

A rule that states holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in quantity supplied.

Variables that Shift Market Supply (pg 83)

-Price of inputs

-Technological change

-Prices of related goods in production

-Number of firms in the market

-Expected future prices

Technological Change (pg 84)

A positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs.

Market Equilibrium (pg 86)

A situation in which quantity demanded equals quantity supplied.

Competitive Market Equilibrium (pg 86)

A market equilibrium with many buyers and sellers.

Surplus (pg 87)

A situation in which the quantity supplied is greater than the quantity demanded.

Shortage (pg 88)

A situation in which the quantity demanded is greater than the quantity supplied.