ECON 2020 Exam 2

market

group of buyers and sellers of a particular good or service

perfectly competitive market

identical goods; buyers can buy all they want, sellers can sell all they want

quantity demanded

the amount of good that buyers are willing and able to purchase

law of demand

ceteris paribus, the quantity demanded of a good falls when the price of a good rises, vice versa

market demand

sum of all individual demands for a particular good or service

market demand curve

add the quantities demanded for each price level; shows how the quantity demanded of a good varies

increase in demand

any change that increases the quantity demanded at every price; shifts right

variables that can shift demand curve

income (normal vs inferior goods), prices of related goods (substitutes), tastes, expectations, number of buyers

normal good

a good for which an increase in income leads to an increase in demand

inferior good

a good for which an increase in income leads to a decrease in demand

substitutes

an increase in price of one good leads to an increase in demand for the other good

complements

two goods for which an increase in the price of one good leads to a decrease in demand for the other good

quantity supplied

the amount of a good that sellers are willing and able to sell

law of supply

when the price of a good rises, the quantity supplied of that good rises

market supply

sum of the supplies of all sellers for a good or service

market supply curve

add up the quantities supplied for each level of price; shows how the total quantity supplied of a good varies as the price of a good varies

variables that can shift the supply curve

input prices, technology, expectations about future, number of sellers

input prices

the supply of a good is negatively related to the prices of inputs; an increase in input prices will decrease the supply because producing it becomes more profitable and less costly